Published Monday, 23 September 2013
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How student finance works
Headlines still screech about "£50,000 debts" for English university leavers who started after 2012. But for most, that figure's nonsense. Low earners will repay far less, higher earners many times that. Financially this is a no-win, no-fee system. Don't believe the hype...
- You don't need cash upfront for uni. Fees are paid for you and you get money for living costs (some lower income families get part of the living loan replaced by a non-repayable grant)
- You repay this loan once you've left, but only if you earn £21,000.
- You repay 9% of everything above £21k. The more you earn, the more you repay monthly.
- The loan's wiped after 30 years - whether you've not paid a penny or have paid a lot - most people will be repaying for the full 30 years
- The loan doesn't go on your credit file.
- Interest is added to the loan at inflation + 3% while studying and between inflation and inflation + 3% afterwards, depending on what you earn. Though you would only actually repay this if you earn enough afterwards to clear what you borrowed in full.
See Martin's full 20 student finance mythbusters
Don't automatically pay fees upfront
Many risk unnecessarily chucking £10,000s away paying fees upfront that would never actually need repaying afterwards. The worse scenario is borrowing elsewhere to pay them - that's a big mistake, yet even so, using savings can be a huge waste too.
This is all because students are only intended to repay student loans if they earn enough. Those who never earn over £21,000 of course never repay anything, so if you paid the fees for them - it's a waste. Yet more realistically even a graduate on average salary afterwards is unlikely to clear what they borrowed in full, in real terms. So paying the fees in that case would be a waste - and borrowing them from elsewhere a tragedy.
Far safer if you want to help your student offspring is to take the loan, but put the same cash in as high an interest savings account as you can, until after university when you've a better idea of their career. And even if they are going to be a high earner so its worth it - do remember a student loan in the long run is likely to be cheaper than many other loans, plus unlike other loans if you lose your job you don't have to repay. So you may be better off using it to repay them instead.
The top student account
My top pick for most this year is Santander, with its strong freebies - a free 4-year railcard (worth c.£120) for first-time Santander student account holders and a up to £1,500 overdraft for three years (granted on a case-by-case basis). You just need to pay in £500/term to get it - so put your student loan into the account to cover this.
If you don't need the railcard there are other accounts that give slightly larger overdrafts, but beware many that look like they offer more don't.
What does a student earn?
Students are constantly told to do a budget. For a working person, you shouldn't spend more than you earn. But what do students earn? I'd define a student's income as: the student loan, any grant, any income from working and any money given by parents or relatives. Total that up, and this is what you should budget not to spend more than.
Council tax discounts
If you're a full-time student living alone or with other students you don't need to pay council tax, whether there's two, three or even 10 of you living together. If a student lives with a non-student, the student is disregarded, so council tax could be reduced as if only a single person lives there, meaning a potential 25% reduction.
But this poses a moral dilemma of whether to split the bill. From the student's perspective, they wouldn't pay anything if their housemate was also a student. From the non-student perspective they'd only pay 50% of the bill if their housemate was also a non-student. My suggestion is to split the 25% difference between the two, so the non-student pays 62.5% and the student 12.5%.
If you work over the summer to keep you afloat between uni terms, make sure you're paying the right amount of income tax. If you earn less than £9,440 a year, you shouldn't pay any tax.
However, students are now taxed through the Pay As You Earn (PAYE) scheme - so if you're only working during holidays and you do pay tax, you may need to reclaim it at the end of the year. See HMRC for how to reclaim this.
Free cash to study
There are lots of pots of money if you know where to look from scholarships for doing a degree, to grants for women in need who want to further their career after having kids. Check out the Educational grants search at family-action.org plus scholarship-search.org.uk and studentcashpoint.co.uk
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