There are many parents that get worried about their children having a student loan. They feel that they will start their working life in debt, they might not get good value for money, they might waste three years studying when they could be working and they may struggle to repay it. While it shows good parenting if a parent is concerned about their child, it is worth having a good understanding of how student loans work first so that you can make sure that you are not unduly worrying.
Who gets the loan?
A student loan is available to cover two things. Every student is entitled to get enough money to cover the cost of their fees as long as they have not had a student loan previously or had a grant (which were given out in the days before loans). The second part of the loan is the maintenance loan which covers living expenses. This is means tested which means that it is based on parental income. The total income of the home that the student lives in will be the one that is used. All students will get some money, but those in homes with a lower income will get more than those in a home with a higher income.
How much is it?
Therefore, the amount that the loan is will depend on the amount awarded. Generally, the fees are £9250 a year for the course and the living expenses will vary. Often it is felt that even a full maintenance loan is not enough to cover all of the costs of paying rent, utilities, travel, books and food. This will partly depend on where the university is, although there is a London weighting added on for those students studying in London. Often students will need top-ups form parents or need to work or save up before they go to university so that they can afford it.
How is it repaid
Unlike a normal loan, this will not have to be repaid in regular instalments. However, once the student graduates they will need to repay the loan as part of their tax code. This works so that, only once they earn over a certain amount will they have to start paying it back, so it is means tested. There is a cap as well, so once they are earning enough, they will repay each month as part of their PAYE and so is repaid automatically before they receive the money. If they are self-employed it will have to be repaid when a tax payment is made once or twice a year so this will have to be factored in when putting money aside towards paying that tax bill.
Does it all need repaying?
It is also worth noting that after thirty years any remaining money owed is written off. This means that it will not need to be repaid any more. This means that if earnings have been low and therefore the repayments have not been made in full, then they will not have to be paid. In fact, many graduates do not ever repay everything they borrowed or any interest at all.
So, the loan can be the only way that many people can afford to go to university. It is means tested and repayments are as well. A degree can give you an opportunity to earn more money and progress your career and if you are able to earn more money then you will need to repay the course costs. However, if it does not enable you to earn more, then you will not have to repay it.