Student finance: what parents need to know
Let's clear up everything you need to know about your child's student finance including loans, repayments, scholarships and more...
- A quick introduction
- Do tuition fees have to be paid upfront?
- What loans are available?
- How much will my child have to pay back?
- When will my child start paying back their loan?
- What other, non-repayable financial support is there?
- How do repayments work?
- Should I take out a loan to cover my child's tuition fees?
- Old system vs new system: is my child better off now?
- How long until a student loan is written off?
- Is it worth paying a loan back sooner rather than later?
- Do student loans count against a mortgage?
- Will it help my child to live at home while at uni?
- Am I responsible for my child's loan?
A quick introductionGet started with this quick video summing up student finance for those beginning their course in September 2017:
Universities and colleges can now charge full-time English students a maximum of £9,250 a year in tuition fees for courses beginning in 2017.
In most cases, fees will be less than this (especially for those provided by local colleges). An English student can expect to pay at least £7,500 a year, with the average annual fee being around £8,500.
- Not studying in England? Read our guides for student finance in Scotland, Wales and Northern Ireland instead.
Firstly, you don’t have to pay your child’s tuition fees upfront…So you can start breathing normally again!
Your child can apply for a tuition fee loan to take care of this. So they can head off to university, without the worry of paying this back until after they’ve graduated.
Your child’s student loan, broken downThere are two types of student loan available: the tuition fee loan we mentioned above, and a maintenance loan. Both must be paid back at a later date.
As the name suggests, the tuition fee loan is there to cover your child's tuition fees.
The maintenance loan is there to help with living costs, such as accommodation, food, travel, going out etc. The amount your child is eligible to borrow in maintenance loans depends on several factors, including where they will be studying and your family's household income.
How much could your child receive?
To give you a rough idea, if they'll be living away from home (and outside of London), a maintenance loan of up to £8,430 per year is available for households earning £25,000 per year or less.
If you're earning more than this, the amount your child is eligible for will be lower. This means you, or your child, will need to make up any financial shortfall to cover these living costs. Because eligibility is dictated by household income, it appears that parents are implicitly expected to fill the gap - something money saving expert Martin Lewis argues should be made much clearer upfront to parents.
If your child is going to university in London, the maximum loan amount available is slightly higher (£11,002) to account for the higher cost of living in the capital.
How much will your child have to repay? It depends...The tuition fee loan and the maintenance loan are added together to give the total amount they will have to repay (plus interest, which we talk about below). The variations mean it's difficult to calculate the exact level of debt your child will graduate with.
However, a typical English student on a three-year course outside of London might expect to graduate with around £35,000-£40,000 of student loans.
There are calculators available online that can give you a closer estimate based on your child's individual circumstances.
Your child only starts paying their loan back if they’re earning £21,000+Loan repayments aren’t based on how much your child borrowed, but on how much they earn later.
For full-time students in England, their repayments will only begin once they have left university and are earning £21,000 or more a year.
If after leaving university, they’re not working or they're earning less than this, they don’t have to pay anything back until they are doing so. And if they are earning £21,000 or more, they’ll only repay an amount based on what they’re earning over the £21,000 threshold.
Welsh repayments work in the same way, whilst Scottish and Northern Irish students start to pay back at an earlier point (currently, once they're earning £17,495 a year).
English and Welsh part-time students may start to repay after the fourth year of study, but only if they are earning more than £21,000.
A bursary, scholarship or fee waiver may be availableMost universities offer various forms of financial support too, particularly (though not exclusively) to students from lower income families. Your child's eligibility for these can also be based on academic ability or if they have a disability.
And the best thing about these? Unlike the loans above, these don’t need to be paid back!
Your child should enquire directly to their university of choice to find out what extra support they offer. In fact, this could be something to ask at an open day, and might even be a factor when choosing a university.
Your child’s repayments come straight out of their pay packetRepayments depend on how much your child is earning, but are calculated at 9% per year of whatever they earn above £21,000 (or, for Scottish and Northern Irish students, £17,495).
To keep things simple, this is repaid directly to the Student Loans Company by their employer as part of their monthly salary deductions. We’ve listed some example repayment scenarios below:
- Earning below £21,000? Your child won’t have to pay back anything.
- Earning £25,000? Your child will pay back roughly £360 a year, £30 a month or £6.92 a week.
- Earning £30,000? Your child pay back roughly £804 a year, £67 a month or £15.46 a week.
Never take out a loan to cover your child’s tuition feesThis is almost always a more expensive option than your son or daughter taking out a student loan. Interest rates on student loans are still very low in comparison to other loans on the market.
Interest rates are as follows:
- While studying and until the April after your child finishes the course: RPI (as of 2016/17, this is currently 1.6%) plus 3%.
- From 6 April after leaving the course until loan is repaid: If income is £21,000 or less, interest is set at RPI at that time. This rises on a sliding scale of up to RPI plus 3% where income reaches £41,000 or more.
More information about interest rates on repayments can be found here.
Good news! They may pay back less per month than students before themTake this example: a graduate who started university in 2011 who goes on to earn £24,000 per year will be paying back £810 per year – £540 more than someone under the new system – even though their tuition fees were £3,375 a year.
That said, there’s no getting away from a) that your child will owe more overall and b) they may be paying back their loan for longer.
Your child might not end up paying it all backAfter 30 years, any outstanding student debt your child still owes is written off.
This is true even if there have been periods in that time where they haven't repaid anything, due to not working or because they were earning below £21,000.
A major review into university funding in 2010 estimated that around 60% of graduates won’t have paid their full loan back after 30 years. So either your son or daughter will be lucky enough to be in the top group of graduate earners, or they will never pay it all back.
It’s not always worth paying a loan back earlyBecause your son or daughter might not end up paying their total loan back during the 30 years before the debt is wiped out, it may not make financial sense to try and repay their loan as quickly as possible. Furthermore, student loans don't affect credit ratings so don't worry about that.
On the other hand, paying a loan back sooner rather than later could be practical for graduates entering a top-earning profession and if they're particularly keen to rid themselves of any extra debt.
Student loans won’t count against a mortgage applicationThe Council of Mortgage Lenders (CML) has said: ‘A student loan is very unlikely to impact materially on an individual's ability to get a mortgage, but the amount of mortgage available may depend on net income (i.e. your “take home” pay after tax and expenses).’
Stay-at-home studying is great (for the right reasons)No, this isn’t just an excuse to convince your child to stay at home. It might actually make better financial sense for them to live at home and go to a local university:
- They would take out a smaller maintenance loan than if they lived away from home.
- Having them under your own roof should make it more manageable if you wanted to assist them financially.
- Does it make sense for them to be paying rent elsewhere if they’re not far from the family home and could commute instead?
This means that a graduate who lived away from home, earning the same salary as a student who lived at home, would repay the same amount each month as the student. A stay-at-home graduate might pay their loan back faster, but only if they’re earning enough to pay the whole loan back.
You’re not responsible for your son or daughter’s loan
Once your child graduates and is earning above £21,000, their loan will be automatically collected through PAYE (a bit like income tax). No cheques and no direct debits needed, meaning it’s therefore virtually impossible for them to fall behind on repayments – one less thing for you to worry about.
So that's what you need to know about your child's student finance. However, we can’t promise that the Bank of Mum and Dad won’t be called upon for some other reason…
Which? University parents guide: everything to support your child in their uni journey, in one free guide