There are basically two kinds of loans you can get when you are a student. One is a student loan and the other is a regular loan from a bank. Depending on your circumstances, you may have one or the other, neither or both. Commercial loans from a commercial lender will have their own terms and conditions, student loans, however, are managed by central government. Here are 6 facts you need to know about them.
The name student loan is quite misleading
Student loans are only loans in the sense that students are given a sum of money upfront and are expected to repay it. The way in which they repay it, however, differs substantially from standard loans and works far more like an extension of income tax. Once a graduate’s earnings hit a certain threshold (currently £25K), they pay 9% of everything they earn over that threshold until either the debt is paid off or for a maximum of 30 years (taken from the point at which the student leaves tertiary education).
Student loan repayments are collected in much the same way as income tax
If you are employed, you will make your student loan repayments through payroll. If you are self-employed, you will make them along with your income tax/NI payments.
After 30 years (from graduation) any remaining debt is written off
This is another major difference between student loans and commercial loans. With a commercial loan, if you make an agreement to repay the borrower within a certain period of time (however long or short that is), then you are expected to do so. With a student loan, your pay back as much as you can within the 30-year period. After this, your repayments cease, regardless of whether or not you have repaid the loan in full.
Fluctuations in interest rates do not directly impact repayments
Interest is charged on student loans (currently RPI plus 3%) but it does not directly impact monthly repayments since these are linked to income rather than to fluctuations in interest rates. In principle, changes in interest rates could influence the amount of money you eventually need to repay, but this assumes you will be in a position to repay your student loan in full in the first place.
Loans can cover tuition fees and/or maintenance
Students resident in Scotland do not have to pay tuition fees if they study at Scottish universities. Students from other parts of the UK will have to pay some level of tuition fees, although how much may depend on where they study, for example students resident in Wales and NI both pay reduced fees if they study within their home area. Therefore, Scottish students at Scottish universities cannot take out loans for tuition fees, but can take them out for maintenance. All other students can take out loans for tuition and maintenance, although the maintenance part of the loan is means assessed.
In short, all students are guaranteed to be eligible for part of the total maintenance loan allowance applicable to their situation. There are different levels of maintenance grant available to those living at home versus those living away from home and a “London allowance” for students living away from home in London. The remaining part of the maximum loan is means assessed, based on the income of the student and their parents.
Student loans may not be enough to cover living costs
University towns can be expensive places and even if you live in one of the more affordable study locations, you still need the necessities of everyday life (such as three meals a day) as well as potentially having to pay for study materials. You may therefore have to think about how you will be able to top up your student loan in order to be able to afford a decent, basic, standard of living.