The government provides financial assistance to university students through a government-financed loan known as student finance. This loan covers both tuition fees and living costs for the duration of the student’s study. There are two main types of loans available: tuition and maintenance loans.
Undergraduate courses in England typically cost £9,250 per year, which can be a significant amount for students or their families to cover. To alleviate this burden, the government offers to pay the tuition fees directly to the university on behalf of the student. This is known as the tuition loan, and the repayment process will be discussed later.
Maintenance loans, on the other hand, help students cover day-to-day expenses such as rent and food while studying. The amount that can be borrowed for the 2024-25 academic year ranges from £4,327 to £13,348, depending on the student’s place of residence, chosen university, and family’s financial situation. Eligible students can determine the amount they are entitled to by clicking here.
There are various repayment plans available for student loans, which can make the process seem complicated. Plan 3, which is the repayment plan for postgraduate loans in England and Wales, is not included in this article. Under Plan 3, no upfront payment is required, and the amount to be repaid each month is based on the individual’s income. The repayment percentage is determined by the income threshold for the specific type of loan and frequency of payment. For example, Plan 1, 2, 4, and 5 require 9% of income over the threshold to be repaid, while Plan 3 (postgraduate loan) requires 6% of income over the threshold to be repaid.
If an individual has multiple plans, the rules for repayment differ slightly. If they do not have a postgraduate loan, they will repay 9% of their income over the lowest threshold among the different plan types they have. In this scenario, only one repayment will be taken each time they receive payment, even if they have multiple plan types. However, if they have a postgraduate loan, they will repay 6% of their income over the postgraduate loan threshold and 9% of their income over the lowest threshold for any other plan types they have. Additionally, employed individuals do not have to make monthly payments themselves, as the money will be automatically deducted from their earnings before it reaches their account, similar to income tax.
Similar to any loan, interest is applied to student loans, which adds to the total amount to be repaid. Currently, the interest rate is linked to retail price rises, meaning that it is not insignificant. The interest rates for different plans are as follows:
6.25% for Plan 1
7.8% for Plan 2
6.25% for Plan 4
7.8% for Plan 4
7.8% for Plan 5
7.8% for Plan 3 (postgraduate loan)
