How student loans work and when you need to repay them

Millions of students are preparing to start university life this September, but while it can be exciting to learn new skills and meet new friends, it "doesn't come cheap", said The Telegraph.

The "rough cost" of a three-year course is £68,349 per year for tuition, books and living expenses, said SaveTheStudent.

Tuition fees are capped at £9,535 a year in England and Wales. The figure has gone up by £285, the first increase in eight years.

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However, this is not an upfront cost, and instead, people can use a student loan to cover the educational aspect and some living costs while at university.

What is a student loan?

There are two parts to a student loan.

The first covers tuition fees "equal to the annual cost" of a course, said BBC News, which is paid directly to the university.

The second is an optional maintenance loan that is paid directly to your bank account in three instalments to subsidise the general cost of living. A maintenance loan is supposed to "help out" with costs like rent, travel and food, but the "way you allocate this money is your decision", said Whatuni.

Unlike the tuition fee loan, the maintenance loan is means-tested and depends on your parents' income and whether you go to university in London.

The maximum maintenance loan for students who stay at home with their parents is £8,877, rising to £10,544 "if they move out and study outside of London", said The Telegraph.

Students who attend university in London while living away from home in the capital can get up to £13,762.

You can apply for one or both types of loan, and whatever is borrowed is then combined into a final total that's repaid once the student finishes their course.

Who can get a student loan?

To get a student loan, you "must be studying at a recognised or listed college or university", said The Uni Guide, and you need to be a UK national or have settled status.

Student finance is typically only paid for a first undergraduate course, even if a previous course has been self-funded.

There is no age limit for the tuition fee loans but there may be limited funding for the maintenance portion if you are over 60.

How to get a student loan

You need to apply for student finance through the student finance body in your country.

Those from England must apply through Student Finance England, while the equivalent in Scotland is the Student Awards Agency for Scotland (SAAS), with Student Finance Wales and Student Finance NI in Wales and Northern Ireland.

You can apply up to nine months after your course starts, but "you might get less money than you expected" if you apply too late, said Gov.uk.

How a student loan works

Once your loan is approved, interest is charged while you study, "long before you have any chance to start paying it back", said The Times.

Don't panic though, added the newspaper, as it "does not work like a bank loan". Instead, it needs to be repaid from the April after graduation, and once earnings are above a certain threshold.

When do you repay a student loan?

A student loan is "more like a graduate tax", said This Is Money, particularly as it is deducted automatically through your employer's payroll.

But the amount a person repays is dependent on "which of the five different repayment plans you're on".

Anyone who started university since 1 September 2023 is on Plan 5 and needs to repay the loan once earnings go above £25,000, with 9% interest charged on earnings above this threshold. The more a person earns, the more they will need to repay each month.

There may be fear that "enormous interest payments could balloon a loan to unmanageable levels", said Evelyn Partners, but, in reality, "many people will never repay the full amount".

Student loans are not recorded on a person's credit file, but "can be taken into account" for affordability checks when applying for loans such as a mortgage, said MoneySavingExpert. The debt is also wiped out after 40 years, or if you die or are "permanently incapacitated".