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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...

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A quick introduction

Get 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.

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 down

There 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 e.g. many students work part-time at university.

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 above a certain amount

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 £25,000 or more a year (as per government announcements in October 2017). 

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 £25,000 or more, they’ll only repay an amount based on what they’re earning over this threshold.

Repayments in Wales, Scotland and Northern Ireland work the same way; the only differences are the thresholds, which are £21,000 for Welsh students and £17,495 for Scottish and Northern Irish students. Read our guides to student finance in these countries for a comprehensive look at how things work here, including how they might vary.

English and Welsh part-time students may start to repay after the fourth year of study, but only if they are earning more than the repayment threshold.

A bursary, scholarship or fee waiver may be available

Most 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 packet

Repayments depend on how much your child is earning, but are calculated at 9% per year of whatever they earn above the threshold in their country (these are outlined above).

To keep things simple, this is repaid directly to the Student Loans Company by their employer as part of their monthly salary deductions. Below is an example for an English student (for whom the salary threshold for repayments is £25,000, following goverment announcements in October 2017):
  • earning below £25,000? Your child won’t have to pay back anything.
  • earning £26,000? Your child will pay back roughly £90 per year
  • earning £30,000? Your child pay back roughly £450 per year.
These payment rates remain the same regardless of how much was borrowed.

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    Never take out a loan to cover your child’s tuition fees

    This 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 £25,000 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.
    Make sure your child keeps their student finance agency informed of their current salary after graduating, so they are charged the correct amount of interest at all times.

    More information about interest rates on repayments can be found here.

    Your child might not end up paying it all back

    After 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 £25,000.

    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 early

    Because 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 application

    The 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?
    Don’t encourage your child to remain at home if the sole reason is to save money, however. While day-to-day costs will probably be cheaper for them, remember: any student loan they take out will only be repaid based on how much they earn later, 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

    Once your child graduates and is earning above £25,000, 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…

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