The bottom line is that higher education for most UK students is only free at the point of delivery – you could be paying back the cost of your uni years for a long time after you graduate.
Paying it back
Once you’ve got your hands on the Student Loan you won’t need to pay it back until you’ve left your course AND are earning more than £21k (England/Wales) or £16,365 (Scotland/NI). You make repayments through your salary, with the money deducted before you get paid each month. If your salary falls under the threshold or you become unemployed, loan repayments stop until you’re back over the limit.
You’ll pay 9% of the difference between your salary and the threshold amount so, as your salary goes up, so will your repayments. Think ahead: you may have to make higher loan repayments in the future at the same time as saving for a deposit, paying off a mortgage, or having other costs to consider.
As with any loan you should check the small print before you sign!
Cost of monthly repayments (£)
What about interest?
The total amount of your loan will be the amount you’ve borrowed each year PLUS interest – and you’ll continue accumulating interest from the day you take out your loan until you’ve paid off the full amount. In Scotland and NI, interest is 1.5% per year. In England and Wales, it varies from 3.6-6%.
There’s lots of talk about loan wipeout where any outstanding loan after 25-35 years is written off. While this is true for the time being, your likelihood of paying back the loan in full depends on things you can’t entirely predict right now – like your future earnings and the state of the economy. You can check your chances for yourself with a loan repayment calculator: try thecompleteuniversityguide.co.uk.
The Student Loan is a long-term commitment. As with any drunken tattoo, ask yourself how you’ll feel about it when you’re 40 before you get inked.
The small print
While you shouldn’t let it stop you getting the funding you need, as with any loan you should check the small print before you sign.
- The loan agreement can change, and without consultation. This means there may not always be a wipeout clause, interest rates may rise and salary thresholds may change.
- For now, you owe the UK Government – but there’s no guarantee the loan book won’t be sold to a private company or even another country, and on what terms, in the future.
- If lots of existing loans go unpaid, the subsequent burden on national debt could make it more likely that terms are changed or that early repayments are enforced.
- A Student Loan won’t affect your credit rating but repayments will leave you with less disposable income, which could affect future loan applications (such as a mortgage).
There is a chance that, if you always earn less than the salary threshold, you may never come close to paying back your loan – but deliberately courting the minimum wage to avoid paying back a loan isn’t the most ambitious start to your working life. Only you can answer whether the cost and time devoted to getting a degree will be worth it for you.