Student finance: what parents need to know
We're separating student finance fact from fiction to help clear things up when it comes to tuition fees, loans and helping your son or daughter cover the costs of going to university.
A quick introductionGet started with this quick video sum-up of student finance:
For courses beginning in 2017, universities and colleges which are deemed to offer a "high quality of teaching" in the UK can now charge full-time English students a maximum of £9,250 a year in tuition fees. While for many courses it's less (especially where they are provided by local colleges), in most cases an English student can expect to pay at least £7,500 a year (with the average around £8,500).
Firstly, you don’t have to pay your child’s tuition fees upfront…So you can start breathing normally again. As you’ll see, your child can apply for a tuition fee loan to take care of this. So they can go off to university and think about repaying this once they’ve graduated (read more about repayments below).
Your child’s student loan, broken downFor student beginning their course in September 2017, there are two types of student loan available: a tuition fee loan (mentioned above) and a maintenance loan. Both must be paid back later on.
Unsurprisingly, the tuition fee loan is there to cover tuition fees.
The maintenance loan is designed to help students with living costs, such as accommodation, food, travel, clothes and going out. It will replace the previous maintenance grants, which didn’t have to be paid back. However the positive of the new maintenance loans is that your child could get more money than they could before; now they may get up to £8,200 (if your annual household income is £25,000 or less).
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. 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 (although it could be less if they are entitled to a fee waiver). Calculators are available online that should help you get a closer estimate for your circumstances.
For more on living costs, see our article on five student bills you should know about.
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. If your child was funded by Student Finance England and studied full-time, their repayments will only begin once they have left university and are earning above £21,000 per year. According to the latest report from the Higher Education Careers Service Unit (HECSU), average starting salaries for graduates range from £18,615 to £22,785, depending on occupation.
If after leaving university, they’re not working or earning less than £21,000 per year, they don’t have to pay anything back. And if they do earn more than £21,000, they’ll only repay an amount based on what they’re earning over the £21,000 threshold (see below).
Welsh repayment works in the same way, whilst Scottish and Northern Irish students start to pay back at an earlier point - currently £16,365 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 bursaries or fee waivers, particularly (though not exclusively) to students from lower income families. These don’t need to be paid back at all. We have more information on how to apply and key facts in our section on bursaries, grants and scholarships.
You may have to provide details of your household earnings to determine your son or daughter’s eligibility. See the Student Finance England site on how to support your child's application for finance.
Your child’s repayments come straight out of their pay packetMonthly/annual repayments 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, £16,365).
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 – if you're living in England, you can use the MoneySavingExpert repayment calculator for personalised predictions for your child:
• earning below £21,000? You won’t have to pay back anything
• earning £25,000? You'll pay back £360 a year, £30 a month or £6.92 a week
• earning £30,000? You'll repay £804 a year, £67 a month or £15.46 a week.
These payment rates remain the same, regardless of how much was borrowed.
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 a student loan. Interest rates on student loans are still very low in comparison to other loans on the market.
For English and Welsh students, the interest tracks the Retail Price Index (RPI) if the graduate is earning below £21,000 after graduation. On earnings from £21,000 to £41,000 the interest rate will gradually rise from RPI to a maximum of RPI plus 3%. Whilst studying, your child pays RPI plus 3%.
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 son or daughter might not end up paying it all backAfter 30 years, any outstanding debt your son or daughter still owes is written off, even if they haven’t had to pay anything during some of that time (because they weren’t working or 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 for the full term, or they 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 help your son or daughter repay their loan early.
On the other hand, it could be practical for graduates entering a top-earning profession who are more likely to have to pay their full loan off, and perhaps 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 reasonsNo, this isn’t just an excuse to try on your child to convince them to stay at home. It might actually make better financial sense for your child 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 your son and daughter living 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 if they’re not far from you?
Don’t encourage your child to remain at home if the sole reason for doing so is to save money. While day-to-day costs will probably be cheaper for them, any student loan they take out will only be repaid based on how much they’re earning, not on how much they borrowed.
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
If your child, having graduated, is earning above £21,000 then their loan will automatically be collected through PAYE (a bit like income tax). No cheques, no direct debits, meaning it’s therefore virtually impossible for them to fall behind on repayments – and is less worry for you.
We can’t promise that the bank of mum and dad won’t be called upon for some other reason, though…