The fundamentals of student finance

It’s May. You’re sitting in your bedroom, probably revising for your A-Level exams which are fast approaching. You look at UCAS and see that offer from the university you really want to go to. Life is good.

Except wait. You quickly realise that in order to actually have everything sorted and ready for September, you have to apply for Student Finance. Maybe it’s what your older brother or sister had to do. Or, if you’re like me, it’s the first time you’ve heard of it. Whilst it’s okay to panic at first, maybe thinking you’ve accidentally missed the deadline, it is vital that you apply.

To start with, it’s important to note that there are two types of loan, a tuition fee loan and a maintenance loan. We’ll start with the tuition fee. This is basically the amount you have to pay to study at university, otherwise known as your tuition costs (hence the name). Currently, it stands at £9,250. For example, if you are enrolled on a three-year undergraduate course then each year costs £9,250.

A maintenance loan is also paid in three instalments, at the beginning of each term

Whilst this is a large sum, most students apply for a loan to cover their tuition fee. In this case, you apply to the Student Loans Company and they act as your sponsor. All this means is that they pay the £9,250 each year so that you can study at your chosen university. It is also worth noting that the money is paid directly to the university in three instalments – none of it ends up in your bank account.

We’ve established what tuition fees are and the fact you can get a loan from Student Finance. Now onto the more exciting loan… the one which actually does end up in your bank account. This is the maintenance loan and it helps you with living costs. This could be accommodation costs, groceries or social events, but be careful not to overspend on these!

However, unlike the tuition fee loan, this one is not set by the university. How much you receive depends on several factors. These include your parents’ income, whether you’ll be living at home or away at university, and whether you’re in London or not. Yes, the capital is expensive so students typically receive slightly more if living away from home and attending a London university. A maintenance loan is also paid in three instalments, at the beginning of each term. This is usually in October, January, and April.

You will not need to start paying back your loans (tuition fee and maintenance) until you earn over the UK repayment threshold

To summarise, when applying to university a student can receive two loans: a tuition fee loan, which covers the academic side, and a maintenance loan, which is supposed to help with living costs. Yet, as you may have noticed reading this article, both are classified as loans which means they do have to be paid back eventually.

This is where things tend to get more complicated. The first thing to remember is that you will not need to start paying back your loans (tuition fee and maintenance) until you earn over the UK repayment threshold. Currently, this stands at £26,575 a year or £2,214 per month. Let’s assume that most of you reading this started your course after September 2012. It means the amount you repay will be 9% of the amount you earn that’s above the repayment threshold.

To try and make this easier let’s look at an example. If you earn £30,000 a year, this is equivalent to £2,500 per month. In this case, you would pay back 9% of the £286 above the threshold (2500 minus 2214) which is just over £25 per month. Hopefully that makes a bit more sense now.

Applying for student finance is important, not only because it covers your tuition fees

So, how much will I spend? This is a question you may be asking yourself, anxious to make your maintenance loan last as long as possible. Recently, Save the Student conducted a survey to find the different expenditures whilst at university. Unsurprisingly, rent is the biggest enemy of a student’s budget. It continues to rise around the country, now standing at an average of £431 per month. Ouch. With this financial burden out the way, groceries come second. Food and other household supplies will set you back around £92 each month.

Seeing all this money disappear from your account can be scary. And yet applying for student finance is important, not only because it covers your tuition fees. Receiving that first instalment of your maintenance loan really makes you consider budgeting. It prepares you for adulthood and the future.