Tuition fees: busting the myths
As thousands of students took to the streets yesterday in protest over university fees, a poll by YouGov for the Independent Taskforce on Student Finance Information revealed that 59 percent of people in England feel they have little or no understanding of the new finance system for higher education.
The widespread confusion over the new system is cause for real concern as many believe students are being put off applying for university by the myths and misconceptions about new tuition fees.
So how exactly does the new system work, and how is it different from before?
Firstly it's important to remember that these changes only apply to students who are starting university in 2012. The rules are not applied retrospectively so if you have already started your course your fees will remain as they are currently.
How much money do you get?The Student Loans Company will pay for your tuition fees (either £6,000 or £9,000 depending on the course you choose) and will also give you a maintenance loan for your living expenses. The maintenance loan will be calculated according to how much your parents earn, where you study and if you live away from home, but everyone will get at least 65 percent of the total regardless of your parents income.
If you come from a lower income family you may be eligible for a grant which replaces some of the student loan and which you will never have to pay back. You may also be eligible for a charitable grant or a scholarship/bursary from your university - these will not need to be paid back.
How much interest are you charged?The interest rate charged on student loans is higher in the new system - currently it is pegged with inflation, but under the new system the rules are different. While you are studying the interest will be charged at inflation plus 3 percent.
Once you graduate, if you earn less than £21,000 your interest will be the rate of inflation, but if you earn more than £41,000 it will be inflation plus 3 percent. If you earn between £21,000 and £41,00 it will be a gradual scale between the two.
You will be charged interest on your student loan as soon as you take it out, but that WILL NOT affect how much you pay back, as you'll see below.
When do you have to repay your loan?Under the current system, you have to begin repaying your loan once you start earning over £15,000 a year. With the new system however, you do not have to start repaying the money until you earn over £21,000.
You will repay 9 percent of everything you earn over £21,000 (before tax) regardless of how much you have borrowed and how much interest you are charged. So if you earn £25,000 a year you would pay back £30 a month. If you earn less than £21,000 you will not have to pay back anything.
After 30 years the loan will be wiped, regardless of how much you've paid towards it or even if you haven't paid a penny. For that reason, most people will never have to pay back the full amount. There is a chance however that if you are a higher earner you might end up paying back more than you borrowed.
What else do you need to know?
- Your loan does not go on your credit file - so is not like conventional debt and will not affect your ability to borrow money in the future.
- If you plan to study part-time the loan system will now be the same as full-time students - i.e. you no longer have to pay for your course up front.
- Because you are borrowing more and repaying a lot less you are likely to be in debt longer than current students. However, because your repayments are lower you are actually £540 better off each year under the new tuition fee scheme.
- You will pay back your loan through the payroll system - the money will be deducted from your pay check in exactly the same way as income tax.