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How does student finance work?

Don’t let the thought of student debt put your child off applying to university. We believe that everyone should have the opportunity to go to university, regardless of their background or how much they earn.

Even though tuition fees have increased in recent years, find out why and how university is still affordable using our parent's guide to university fees.

No fees to pay up front

Tuition fees for UK students are now £9,250 per year, which means that most students will graduate with a ‘debt’ of £27,750 or more after three years of study.

But your child won’t be expected to pay any tuition fees up front before they start university. And they won’t start paying anything back until they have a job and are earning above a certain salary. Currently, this is £27,295 a year. This figure is reviewed every April. 

Student loans explained

Most students living in the UK choose to apply for a student loan. That means that the government agrees to pay their fees during their time at university.

Frequently asked questions

 A student loan is made up of two parts

  • A tuition fee loan, which the government pays directly to the university. This covers the costs of teaching and other services such as student support and the library.
  • Students can also apply for an optional maintenance loan to help support them with the everyday costs of student life. such as accommodation, travel, shopping and socialising with friends. This will be paid directly into your child’s bank account each term.

The amount of maintenance loan your child receives will depend on your household income and other factors. Such as whether they will be living at home or in student accommodation. When they apply for their student loan you’ll be asked to provide some evidence of your earnings. Such as a P60 form, bank statements or proof that you’re receiving benefits.

* Correct from 6 April 2021 

It's important to mention that the maintenance loan your child receives is unlikely to be enough for them to live on. In particular, it may not cover the full costs of their student accommodation. When your child applies for a place in a hall of residence they may be asked to pay a deposit and/or a month’s rent upfront. This will be before they’ve received their student loan.

It may come as a surprise that the government expects you to contribute towards your child’s living costs during their time at university. So it’s a good idea to start saving early. Work out how much money you’re able to contribute towards their living costs and how much they’re going to need each week. Talk to them about getting a part-time job to top up their income while they’re at university.

In addition, your child may be asked to contribute towards a small number of items which are essential for their course. Such as basic equipment, textbooks and attendance on field trips. You’ll receive details from the university when you apply.

Your child will need to set up a student bank account for their student loan to be paid into. Many banks offer attractive incentives for students setting up new accounts. From cinema tickets to railcards offering generous discounts on travel – so shop around to find the best deal.

Your child should apply for their student loan as soon as they’ve applied to study at university. The application process varies depending on where they live in the UK.

For full details and to submit an application visit the relevant website below:

Many universities offer additional financial support packages for students from low-income households. Or those experiencing financial hardship. This includes bursaries, which don’t have to be paid back.

Find out what support we can offer. 

For details of other government support available, including Child Tax Credits, NHS bursaries, social work bursaries, and help with costs of travel to UK clinical placements, visit gov.uk/student-finance

Repaying student loans

Don’t be put off by the size of the ‘student debt’ your child will graduate with. It’s probably more accurate to think of their outstanding student loan as a ‘graduate tax’ rather than a ‘debt’. A small amount that will be deducted from your child’s salary every month for a portion of their working life.

Don’t be intimidated by the figures involved. Yes, £27,750 is a lot of money. But remember that your child will never be asked to pay back any of their student loan until the following April after they’ve finished their course. And they’ll need to be in employment and earning more than £27,295 per year.* Until this time, they won’t have to pay back anything. 

* Correct from 6 April 2021

  • As soon as your child is earning more than £27,295 per year (equal to around £2,275 per month) their repayments will start from the following April.
  • Repayments will be automatically deducted from their salary through the Pay As You Earn (PAYE) scheme – so they won’t have to do anything.
  • Each month the amount they will repay will be 9% of the amount they are earning over the threshold (not 9% of their overall salary).
  • So if your child earns £30,000 per year (£2,705 above the £27,295 threshold) they’ll only pay back 9% of £2,705 every year. That’s £243.45, which means they would repay around £20.29 per month.

For more straightforward advice about repaying student loans you’ll find these links useful:

* Correct from 6 April 2021. Reviewed annually.

Some important things to note

  • You’ll notice that the size of your child’s ‘student debt’ doesn’t affect how much they repay each month. The amount is determined by how much they earn.
  • Your child won’t be chased for outstanding debt. If they become unemployed or their salary falls below the threshold then their repayments will automatically stop. Until they’re earning above the threshold again.
  • It’s true that student loans gain interest (which is currently above the rate of inflation) – but don’t be alarmed. Whatever happens, your child’s debt will be written off after 30 years, regardless of how much they still owe. In fact, economists have predicted that the majority of students will never pay back their entire student loan.
  • ‘Student debt’ is not taken into account when your child applies for a mortgage. So applying for a student loan now won’t affect their ability to secure a mortgage and get on the property ladder later on.
  • Always remember that the costs of any student loan is likely to be offset by the increased employment opportunities. As well as the higher salary your child will get to enjoy throughout their working life as a result of having gained a degree. Research carried out by the Institute for Fiscal Studies in 2020 showed that graduates will earn on average 20% more than non-graduates during their working life+.

+GOV.UK website, published 29 February 2020.