Understanding finances for higher education

Higher education is a great way for your child to broaden and enhance their career opportunities; however this path often has financial implications. On average university costs full time students in England £8,350 per year with most courses lasting 3-4 years.

But don’t worry; there are plenty of grants and funding options available for students to cover these costs. In this simple guide we will explain the options available to your child so you can effectively help guide them through their finances.

Tuition fees

The cost of tuition varies greatly depending on where you live. For example most Welsh students are only paying approx. £4046 overall for tuition.

Student loans

The student loan is separated into two parts. Part one is the loan that covers the tuition fees which is paid directly to the university and part two is the loan that covers living costs (known as the maintenance loan). The combination of these two parts is what the student will owe at the end of their course.

The good news is that a student will only have to start repaying this loan once they are earning more than £21,000 per year.

Maintenance loan

The maintenance loan is the amount lent to you by the government to cover living costs for the duration of the course. The amount your child will receive will depend on when they start the course, where they live and what their household income adds up to.

The maintenance loan will be paid directly into your child’s bank account every term (3 payments per year).

Students from low income families or those who have special circumstances may be entitled to extra financial support.

Extra support

Maintenance grants (only available in Wales, Scotland and NI)

Maintenance grants are available for students in Wales to apply for. These grants are paid as a top up to the maintenance loan, only you don’t have to pay this money back.

Special Support Grants (England)

Your child may be eligible for a special support grant if:

• They are a single parent / single foster parent of a child less than 20 years old who is in full time education (anything up to higher education level)
• Their partner is a full time student and one or both of them is responsible for a child less than 20 years old who is in full time education
• They have a disability which qualifies them for the Disability Living Allowance, Disability Premium or Severe Disability Premium.
• They qualify for Personal Independence Payment or Armed Forces Independent Payment
• They are deaf and qualify for Disabled Students Allowance
• They have been treated as incapable of work for a period of at least 28 consecutive weeks
• They have a disability qualifying them for income-related Employment and Support Allowance
• They have taken time out from a course due to illness or responsibility of care and are now waiting to go back on the course

Educational grants

Many universities offer their own grants, bursaries, scholarships or fee waivers to students from low income families. They don’t affect the amount of student loan your child is eligible for and they don’t need to be paid back.

Check the university website to find information about what they offer.

Additional funding support

There are several other financial support options for those with various circumstances. For a full list visit https://www.gov.uk/student-finance/extra-help

Loan repayments

As we have already mentioned loan repayments only begin once your child is earning £21,000 or more. The amount that is repaid is 9% of what they earn that is above £21,000 and will be deducted from their salary.

For example if they are earning £25,000 then their repayments will be 9% of £4000 (the amount above £21,000) which is £360 per year / £30 per month.

Any amount still owed after 30 years is written off regardless of how much is still left to repay.

Interest rates

Interest is charged from the very first loan payment until your child has fully repaid the loan (or after 30 years when the loan is written off).

The interest rate is based on the Retail Price Index (RPI) plus 3% and your child’s income.

Whilst studying the interest will be:

• RPI plus 3%

After the course has finished the interest rate will be:

• <£25,000 income = RPI
• £25,001 to £45,000 = RPI plus 3% depending on income
• >£45,000 = RPI plus 3%

When to start applying for a student loan

Student loan applications open the spring before the course starts. It can take up to six weeks to give a response to a request for a loan and you don’t need to have a confirmed place to apply so it’s definitely better to get things rolling early (preferably before the summer holidays).

Can you afford to support them?

The more you earn the less student loan your child will get because the government expects you to contribute to the fees. The reality is that many students don’t want to ask their parents for help and end up struggling with their living costs so it is important to discuss this with your child.