how student finance actually works

don't confuse the cost and the price tag

With headlines shouting about £50,000 student debt, it's easy to feel stressed by this huge sum. But to clear the air, the price tag of university is mostly irrelevant. What matters is how much you have to repay, which is a separate number from the total amount of tuition fees, maintenance loan, and interest.

Your repayment solely depends on what you earn after university. It's a no win, no fee education financially. Those who earn more will repay more, while those who don't gain as much financially from university will repay much less or nothing at all.

you don't need cash to pay for university

Here's the good news: once your application is processed, the Student Loans Company automatically pays your tuition fees. There's also a loan available for living costs.

Full-time students only need to start repaying these loans in April after they graduate or leave university, regardless of the course duration.

You have the choice to pay tuition fees directly, but that's often a bad idea. Wanna know why? 👇

to pay tuition fees directly, or not…

It might seem like a good idea to pay tuition fees upfront, but this is what you need to consider…

Repayment: If you pay upfront, you're missing out on the repayment terms and benefits of student loans. Repaying through the income-based system is more flexible and based on what you earn after graduation. 

Opportunity Cost: Paying upfront can tie up a significant amount of money that could be used for other investments or financial goals. Remember, the loan is interest-free for many graduates. It’s all dependant on income.

Financial Buffer: With loans, you have a financial buffer during your studies and after graduation. You can focus on building your career without the immediate pressure of repaying large sums. 

so what are you actually paying back?

The big question many ask is...

how will I afford to repay these debts with a low paying job?

They don’t make it easy to decipher what you’re specifically expected to repay. The threshold and repayment percent changes depending on what year you began uni (confusing, right?)

starting your course on or after 1 August 2023

You’ll only repay when your income is over £480 a week, £2,083 a month or £25,000 a year (before tax and other deductions). Also known as Plan 5 (weird, I know)

starting your course on or after 1 September 2012 and 31 July 2023

You’ll only repay when your income is over £524 a week, £2,274 a month or £27,295 a year (before tax and other deductions). Also known as Plan 2 (make it make sense)

Once you reach your threshold, you’ll be automatically paying back 9% of your income over the threshold towards your repayments. So, if you started uni in August 2023 and are earning £2,750 a month one year after you graduate, you’ll be paying £82 a month towards your student loan repayments. 

£2,750 – £1,834 (your income minus your threshold) = £916. Then 9% of this £916 = £82

The best bit? Your student debt is wiped after 30 years if you haven’t cleared it by then. So chances are, you’ll never end up paying back the full loan unless you’re earning the mega bucks to have the means to repay it.

So in reality, those on low wages will repay little or nothing. Only higher earners contribute more. It's important to remember that not repaying much because you're just above the threshold isn't a bad thing. The system ensures that those who benefit the most financially from university contribute the most. It’s a strange system, but it works in your favour as it all depends on how much you’re earning. 

There’s more on student loans and debt on the Good With app 👇👇👇