How do student loans work?

What is a student loan?

A student loan offers undergraduate and postgraduate students the opportunity to borrow money to fund their higher education.

Going to university can be very expensive, and tuition fees alone can cost over £9,000 a year. With accommodation and living expenses on top of that, it’s easy to see why it may be necessary for students to take out a loan.

The government-owned Student Loans Company (SLC), sponsored by the Department for Education, administers student loans with affordable repayment plans to higher and further education students in the UK.

Eligible students can benefit from a subsidised rate to help cover living costs and tuition fees. Repayments are then based on how much you earn once you start working.

The SLC student loans are by far the most popular way for students to fund their university costs. According to government figures for England, £20 billion is currently loaned out to around 1.5 million students each year.

What does a student loan cover?

There are two types of student loan you can apply for:

• Maintenance loan – this covers accommodation and living costs while you’re at university. It’s paid directly into your bank account at the start of each term.

• Tuition fees loan – this covers the cost of tuition fees and is paid directly to your university or college.

What else do students have to pay for?

Your tuition loan won’t cover the costs of items like books, materials or equipment, however your maintenance loan may be able to cover some of these expenses. With that said, if you’re living away from home, this money is likely to go towards your accommodation, utilities, food and other basic living costs.

Sometimes students find that their maintenance loan won’t stretch far enough to cover essential costs, before books and equipment are considered. The maintenance grant, which students used to use to cover extra expenses, was scrapped by the UK government in 2016, which means you may need to fund these costs yourself.

How much will my student loan be?

Tuition fees loan

Currently, you can borrow up to £9,250 per academic year, depending on the tuition fees set by your university or college. Students on an accelerated degree course could get up to £11,100. The maximum amounts that universities can charge are set by the government and can change over time.

Maintenance loan

The amount you can borrow depends on whether you live at home or away. It also depends on your family income – so if you’re living at home with your parents, their income will be considered. As a percentage of the maintenance loan is means-tested, you might not get as much if your annual household income is high.

The maximum amounts for maintenance loans in 2023/2024 are:

• Up to £8,400 if you’re living at home

• Up to £9,978 if you’re living away from home, outside London

• Up to £13,022 if you’re living away from home, in London

• Up to £11,427 if you spend a year studying abroad as part of your UK course

• Up to £4,221 if you’re a mature student over 60 on the first day of the first academic year of your course.

To help you estimate how much maintenance loan you could get, you can use a student finance calculator that’s relevant to the country you’re from:

Students from England or the EU

Students from Scotland

Students from Wales

Students from Northern Ireland

Am I eligible for a student loan?

You can apply for a full student loan (tuition and living costs) if all of the below apply:

• You’re a UK national, an Irish citizen or have ‘settled status’

• You normally live in the UK and have been living in the UK for the past three years

• You’re enrolled full-time on your first higher-education qualification (or part-time if you’re studying at least 25% of an equivalent full-time course)

If you’re not a UK national, you might still be eligible if you’re:

• Under 18 and have lived in the UK for at least seven years

• Over 18 and have lived in the UK for 20 years, or at least half of your life

You may be able to apply for tuition fees support only, if a family member has settled status in the UK, provided you’ve been living in the UK and Islands for three years prior to starting your course.

If you’re not eligible for student finance, there are some alternatives available:

• Scholarships – these are rare and naturally highly sought after, but a successful scholarship application will cover all or some of your studying costs for you.

• Private student loan – just because you’re not eligible for student finance, doesn’t mean you’re not eligible for other types of student loan. There are a number of private student loan companies available that can help fund your studies. However, these companies don’t offer the same type of deals as student finance, which can make them much more expensive.

• Defer – if you’re not eligible for student finance because you’ve not been in the UK for long enough, deferring for a year or two could be all you need to do to get the funding you need.

• Degree apprenticeships – apprenticeships are increasing in popularity because they offer a way to earn a degree-level qualification without racking up the cost. Degree apprenticeships allow you to work while completing your qualifications, with your employer paying your tuition. While it’s not the university experience, it offers a similar end result.

How do I apply for a student loan?

You can apply for a student loan via the government website. Once you’ve submitted your application, expect to receive notification on the decision in around six weeks, which should also confirm how much you’ll get.

When should you apply for student finance?

Ideally, the sooner the better. The application process can take a while and many other students will be applying alongside you. You don’t have to have a university place confirmed to apply for student finance. You can also apply for student finance up to nine months after the first day of the academic year.

Here are the deadlines for when you need to have applied by:

You can find further information about the application process on the government website.

How do student loan repayments work?

You’ll need to start paying back your student loan, plus any interest, from the April after you finish your course. You’ll be put on one of five repayment plans, which depends on where you’re from and when you started your course.

The good news is that you won’t have to start making repayments until your annual income before tax is over a certain amount:

• Plan 1 – £22,015

• Plan 2 – £27,295

• Plan 4 – £27,660

• Plan 5 – £25,000

• Postgraduate – £21,000.

These figures are correct at the time of publishing on 12th October 2023.

You can check which repayment plan you’re on by signing into your student finance account, or on the government website.

How much are the repayments?

Once your earnings reach the threshold for your plan, those who took out an undergraduate loan will need to repay 9% of everything you earn above that each year. For postgraduate loans, it’s 6% of earnings over the threshold. So, the more you earn, the higher your repayments will be.

For example, if you’re on Plan 1 and your annual salary is £25,000:

• £25,000 is £2,985 above the £22,015 Plan 1 threshold

• You’ll need to pay 9% of £2,985

• Your repayment for that year will be £268.65.

If you lose your job or take a pay cut, your repayments will stop. You’ll only need to start paying again if your income goes above the threshold.

If your earnings never top the threshold, you’ll never have to pay anything.

If you have both a postgraduate loan and any other plan type, you’ll have to pay the amount required for both loans over their respective thresholds. These will be paid together, but the two loans are treated separately and could be wiped at different times.

How do I make repayments?

If you’re employed, you don’t have to do anything. Once you’re eligible, repayments are automatically taken from your salary, just like PAYE.

If you’re self-employed, you’ll need to include your student loan when filling out your self-assessment tax return each year. The student loan repayment will be based on your gross annual income over the threshold of the plan you’re on.

If you move abroad after your course, you’ll need to make payments directly to SLC. You’ll be charged in GBP and will be responsible for any conversion fees and transfer costs.

Can I pay off my student loan early?

Yes, you can. If you choose to pay off your student loan early, you won’t be charged an early payment penalty. You can also make additional voluntary repayments at any time.

When can a student loan be cancelled?

If you become disabled or permanently unfit for work, your student loan may be cancelled and you won’t have to pay it back.

Determining exactly when your student loan gets written off, and any remaining debt wiped out, depends on which repayment plan you’re on. The majority are written off when you are 65, or 30 years after you took out the loan.

To see what applies to you, check the government student loan website.

If someone with a student loan dies, the Student Loans Company will cancel the loan. You’ll need to send the SLC a copy of the death certificate and the person’s Customer Reference Number.

By getting a better understanding of the different types of loans available and how repayment works, you’ll be able to take better control of your money as you enter into higher education. Take charge of your loan situation by exploring all potential options to suit your financial needs.