A Student Primer to University Financing: Everything You Need to Know

The thought of going to university in preparation for embarking on a successful career can be both exciting and romantic. However, it can also cause its fair share of anxiety when you find out how much it is going to cost. For most UK students there is no need to fear. There are student loan programs in place that make going to university fairly affordable.

Students

If you are planning to enter university later this year, it is important for you to understand that the rules have changed. Not only has the amount of tuition schools can charge been increased, but also there are new guidelines as to who can borrow and how much can be had. In this primer to university financing, we will get you up to speed.

How Universities Are Funded

In getting started, it is important to know how universities in the UK are funded. Most universities are fully funded by government revenues, while a lower number are only partially funded. The only two universities that receive no government subsidies are the University of Buckingham and the University of Law. The former is a charitable organization while the latter is a for profit institution.

Since UK universities are funded by government subsidies, they have very little latitude in terms of what they can charge for tuition. Beginning in the late 1990s, university students were being required to pay as much as £1,000 toward annual tuition costs. The 2006/2007 school year that amount was raised to £3,000; as of 2012, it is £9,000.

The amount students pay certainly does not cover the full cost of their education in most cases. Government funding makes up the rest. However, if the economy continues to stay relatively weak we can expect student tuition costs to go up again in the near future.

Student Loan Availability

Students requiring financial assistance have access to several different financing vehicles. Most students will fall into a general pool that allows so much money to be borrowed for tuition, maintenance, and additional income. Some students in specific course studies -- medical students are one example -- are eligible to borrow additional money due to the greater costs associated with their education.

Here are the main financial options most students would expect to apply for:

  • Tuition Loan - This loan is obviously to pay for tuition expenses. According to GOV.uk, full-time students can receive up to £9,000 for attendance of the public university or £6,000 for a private university. Part-time students are eligible to borrow up to £6,700 and £4,500 respectively.
  • Maintenance Loan - A maintenance loan is designed to help cover the student's living expenses while attending university. There are different amounts available for students living at home, those living away from home in London, those living away from home outside of London, and those who study abroad.
  • Maintenance Grant - The maintenance grant is additional income to help pay for living expenses. The difference between the grant and the loan is the fact that the grant need not be paid back. The grant is deposited directly into the student's bank account at the start of term and can be used as he or she sees fit. It is important to note that any amount a student receives through this grant will reduce what he or she is eligible to receive through a maintenance loan.
  • Special Support Grant - Students who meet specific requirements for low income might also be eligible for the special support grant. This is nearly identical to the maintenance grant except for the fact that the amount is not deducted from the maintenance loan.

How much an individual student is eligible to receive will be determined by a number of factors including the school he or she is attending, the chosen course of study, his or her personal income, the income of their parents, and their living arrangements. Needless to say, not every student receives the same amount of money.

Repaying Student Loans

More than one student has been fearful of taking loans because the idea of repaying them can be scary. Not only is this understandable, it is also a good attitude to have. Nevertheless, if the truth be known, it is not hard to repay student loans once you graduate and get a job.

According to an August 2012 reported by the Guardian, interest rates for student loans start at 3% plus the annual rate of inflation. That rate remains in force for as long as the student is in university. Upon graduation, the rate will range between 0% and 3% depending on the annual income of the now working student.

Repayment is handled through an employer deduction from the worker's pay cheque. The amount deducted is equal to 9% of the employee's salary in excess of £21,000. However, here's the best part: students do not have to begin repaying their loans until they graduate and get a decently paying job.

Unfortunately, some graduates are simply unable to find good work in their field of choice. For some of them, student loans linger year after year as they struggle to pay them off. Nevertheless, the law is set up to take those types of circumstances into account, resulting in the forgiveness of a student's remaining balance after 30 years.

Other University Funding Options

Despite the UK government's attempts to ensure every student who wishes to can attend university, there are still some who fall between the financial cracks and are not eligible for enough money by way of traditional loans and grants. There are other options. For example, a student might be eligible for:

  • Bursaries - A bursary is a monetary award usually provided by a university to a student who is impoverished but nonetheless deserving of a good education. Such awards are not exceptionally large, but combined with other funding sources they can be very helpful.
  • Scholarships - Another source of funding comes by way of scholarships offered by universities, trade organizations, corporations, and other entities. Sometimes scholarships exist to benefit a specific group of people or promote a specific course of study.
  • Fee Waivers - There are some universities that endeavour to help the impoverished through fee waivers. This type of assistance varies from one school to the next and is a matter of individual policy.

Those who truly cannot afford a university education can take heart in knowing that the law requires any university charging more than £6,000 annually to have some sort of mechanism in place to help those in financial need. They cannot simply turn away a student without even attempting to help where they can.

Student Loans and Pensions

Graduate students heading out into the world to find their first jobs need to consider pension plans in light of their student loans. How a pension plan is set up will determine whether the money you set aside will be considered part of your gross salary for loan repayment purposes.

Here's how it works:

  • Employer Pensions - Those who use employer pensions have the advantage of their pension contributions not being considered part of their salary for loan repayment. As an example, if you earned £25,000 annually and contributed £3,000 to your pension your salary for calculating repayment of your student loans would be £22,000.
  • Private Pensions - A private pension works just the opposite. Whatever your total income is before pension contributions will be considered for loan repayment. However, individuals can request a self-assessment tax return in order to figure out the best course of action.

In either case the key thing to remember is the fact that what you are eventually repaying on your student loans will be entirely dependent on your income once you enter the working world. If you are forever stuck in a low-income job, you may pay very little or nothing at all. Yet if your university education allows you to land a better paying job, you will have the income to repay your student loans.

New Rules for 2012

Before we conclude, it needs to be noted that the new rule changes that went into effect in 2012 -- of which we spoke of here -- only apply to new students whose first term was no earlier than that year. Undergraduate and postgraduate students who began their studies prior to 2012 remain under the old rules.

Conclusion

The idea behind student loans and grants is to make sure every UK citizen who wants a university education can indeed afford it. They have helped thousands of students thus far and will continue to do so well into the future. If you are preparing to enter university within the next year, or you are a parent of a university bound student, it is a wise idea to begin investigating the idea of student loans right now.

Remember that interest rates and income eligibility requirements will continue to evolve right along with the UK economy. It is important to know where you are going right now rather than waiting until the last minute to do the research.

Most student loans will be handled by a very limited number of financial contusions. Moreover, because these loans are government-funded there is nothing by way of competition or rate comparisons. We offer you the following links to various websites you might find helpful in your search for student funding. Two of the sites give you the opportunity to apply for assistance while the rest are informational in nature.

Student Loans Company - A UK-based non-profit offering student financing for those attending university in the UK. This site offers all the information you need to know about their loan programs, how to apply, and how to repay. This organisation administers most of the student loans in the UK.

Direct.gov - The main portal for students wishing to apply for student financing directly through government channels. Once you establish an account and you can apply for loans, manage bank details, and keep track of all your correspondence regarding your financing.

Student Cash Point - When you register with this free website, you have access to information about student loans, grants, scholarships, and more. You can search by school, read the various student-funding guides they offer, and keep up on the latest news in the world of student funding.

Scholarship Search - If you are in the market for scholarships, this site is a good place to start. They gather information regarding all sorts of scholarships into one place, and help you search for it easily.

Money Saving Expert - This link takes you to a site making a point of dispelling myths about the new rule changes for student loans and grants. They offer a number of helpful guides covering many of the aspects of university financing.

The Complete University Guide - A very helpful link to a website that is beneficial to both parents and students alike. If you have questions about student financing, you'll probably find answers here.

NASMA - A group of 600 individuals and organisations whose work pertains to student financing formed this association to be the clearinghouse of all student funding information in the UK. As far as comprehensive website go, this one is hard to beat.

GOV.uk - This link takes you to the government website offering a seven-step guide to student financing. Although this guide is less than detailed, it does offer a basic overview of student financing as well as helpful links to other websites.

London Metropolitan University - The University does a good job explaining how student funding works on this page. The information they offer is fairly universal rather than just focusing on their institution.

HM Revenue & Customs - Another government run site with plenty of helpful information discussing the details of student loans. They get into some of the questions you will not find answered in other places.

Student Finance NI - Students planning to live and study in Northern Ireland have some special considerations to think of. This site addresses all aspects of student financing for such individuals.

The Guardian - The Guardian offers their guide to bursaries, scholarships, and grants here. This is a fairly lengthy report but it contains a lot of valuable information. Note that it was published in 2010, before the most recent rule changes.