How will my child pay back a government loan for higher education?
The government loan for higher education is made up of the tuition fee loan to cover the costs of the tuition fees and the maintenance loan to cover your child's living costs when at university.
Loans for tuition fees and living costs
Tuition fees are up to £9250 per year and students can take out a Fee Loan to cover the full amount. Students can also have a loan to help with living costs. Interest is charged on these loans. How much interest depends on the student's earnings after they graduate. If they have a lower income, they are charged a lower rate of interest, if they have a higher income, they are charged a higher rate of interest. Therefore the level of debt students now have to take on is substantial. Having said this, the method by which students repay this debt is affordable because it is always linked to their income as a graduate.
Loans for living costs from the government
You can also apply for a loan to cover some of your living costs such as rent, bills and food.
You may have to give details of your household income.
The loan is paid directly into your bank account at the start of each term. You have to pay the loan back. You can use this Student Finance Calculator to see what loans you could get. It will ask about household income.
Financial support you do not have to pay back
There are also other sorts of financial support available - which you do not have to pay back.
- Parents Learning Allowance, Childcare Grant, Adult Dependants Grant & Disabled Students Allowances - which is money for students who are also parents, and/or students who have an adult with a very low income who is financially dependent on them, and/or Disabled students on gov.uk.
- Bursaries, scholarships and awards - Many universities will offer additional funding to certain target groups. This may include, for example, students from a lower-income background, care leavers or disabled students. Some universities may offer a reduction in tuition fees or possibly a free year on some courses and some universities may offer a bursary, which is a non-repayable grant. Each university will decide what support they’ll offer so you’ll need to check to see what your chosen university is offering and whether you’re eligible.
For more scholarship and bursary information:
- Which? University bursaries and scholarships
Paying back loans
Students pay back the government loans for higher education through the income tax system once they finish or leave their degree course. From the April after a student graduates they become liable to repay these loans for a period of up to 30 years, or until the debt is fully repaid - whichever comes first.
However, they only make repayments if they are earning at least £26,579 gross taxable income per year. If they are earning less than this - they do not make any repayment. Gov.uk has more information about repaying tuition loans. This money is deducted directly from their salary each month in addition to their income tax and national insurance. So for example, a graduate earning £26,000 gross taxable income per year will effectively pay 29% income tax, on the proportion of their pay over £26,579, instead of 20% income tax. The higher the graduate's income therefore, the higher their monthly repayment and the more money they will repay overall.
After 30 years, any remaining debt that has not been repaid is completely written off. In effect therefore, this is like a graduate income tax with a 30 year cut off.
Student Finance - Repaying your loan
The government has increased the starting threshold for repayment of student loans to £26,579. This means that the amount of student loan that most graduates will repay has been significantly reduced. This starting threshold will continue to increase as average wages increase.
- If you child is earning £31,575 they will pay back around £450 a year which is just under £40 a month - less than a night out!
- If you child is earning £36,575 they will pay back around £75 a month - which sounds like a lot but when they are earning £36,575 a year is affordable