2012 tuition fees myth busting guide

Lucy Watson, OpinionPanel

The new tuition fees system starting in September 2012 is controversial and contentious. Following an independent review, chaired by Lord Browne whose recommendations included no fee cap whatsoever, the government introduced an upper cap of £9000, but critics felt it was introduced to try and reduce government debt. Although tuition fees will rise steeply from September 2012, the actual amount that needs repaying will vary massively from individual to individual, and crucially is largely linked to your monthly earnings. In some respects, the new system will be more progressive than the old system and more like a tax than debt. Importantly student loans won’t go on any credit files and therefore shouldn’t affect credit ratings or ability to get a mortgage.

From September 2012, although tuition fees at English universities will have increased, the majority of students won’t have to make any up-front payments for their degree course. Instead they’ll be eligible for a government loan which gets repaid through the tax system once graduates are earning over £21,000 per year; the bigger the salary, the bigger the monthly pay-back.

For many the key question is going to be ‘how much do I have to pay back each month?’ rather than ‘how much do I have to borrow’? This figure is salary dependent. The government will deduct 9% of graduate earnings over a £21,000 threshold – so you only pay back 9% of everything you earn above £21,000. Someone earning £25,000 per year would repay £30 per month, someone on £35,000 would pay back £105 per month and someone on £20,000 would repay nothing. The repayment period is capped at 30 years, so although many graduates will find themselves repaying for the full 30 years, any debt outstanding after that period is written off completely. For graduates who never reach the initial £21,000 threshold for 30 years, will never pay back a penny.

There are various different factors that impact on the overall amount that will need to be repaid. First, there is the cost of borrowing the money from the government or the rate of interest charged on the loans. This is largely dependent on the prevailing rate but it also varies based on income level, whether a student has graduated or is still studying and whether the student is participating in full-time or part-time higher education. With so many variables at play, the total amount of debt accumulated will greatly vary by individual.

A key factor that affects the total level of debt will be the tuition fees charged by universities. These can be set at up to £9,000 per year. Institutions charging over £6,000 have to take measures to attract students from poorer backgrounds in order to ensure that higher education is still accessible to all. These measures generally appear as support, based on students’ family household income and personal circumstances. However it’s worth adding that because the repayment is linked to earnings, the amount a graduate pays back per month is exactly the same whether you to go a university charging £6000 a year or £9000 a year. This is because the amount repaid is 9% of everything over £21000 irrespective of how big the total debt you have accrued is.

Another important factor is living costs – rent, books, travel, food, etc. Depending on personal circumstances, students may be eligible for maintenance loans to cover these expenses. The maximum maintenance loan that any student can take (for those living away from home in London) will be £7,675 but a more typical amount might be £5,500 (for those living away from home and outside of London). So, many students will end up with around £39,000 to repay after a typical three year degree course.

For those from poorer backgrounds, there are a variety of measures available to encourage participation in higher education. Those with a household income of £42,600 or less are eligible for a maintenance grant of variable amounts to ‘top up’ maintenance loans. This is a non-repayable grant. In addition there are assorted scholarships and bursaries that are given out by universities on an individual basis. The National Scholarship Programme has been created as part of the wider access agreements and is specifically for students who meet certain criteria set out by the university in accordance with their access agreement. This is mainly in the form of bursaries and fee waivers but again dependent on the university.

Those students with disabilities or dependents may be entitled to additional financial support which is assessed on a more individual basis.
Students that started university before 2012 and graduates will remain on the old system of tuition fees and repayment.

Why is this happening?

The main reason this is all happening is because universities and colleges need to replace funding they’ve lost through budget cuts made by the government, as discussed by the BBC. This is especially true of arts and humanities subjects.

Starting university in September 2012?

Unfortunately, there will be a higher tuition fee to study at university. The amount depends on what is studied and where. However, as Wesley Stephenson highlights, some students may end up paying back less than they would do now! Direct.gov has produced guidelines on this as well. They also provide information specifically for ‘Future Students’ on university fees and student finance in 2012.

Tuition Fee Loan

• The loan that covers the fee you pay to study at university or college. It varies depending on where and what you study. If you are a full-time student on your first higher education course the tuition fees will get paid directly to your higher education institution
• Originally the cap (maximum a university or college can charge you per year) was £3,290 for full-time students
• From September 2012 universities and colleges in the public sector (not private ones – they can charge what they want) in England can charge full-time students up to £9,000 per year
• Tuition fee loans are paid back when you are earning over £21,000 a year
• If you are a part-time student you can apply for a loan of up to £6,750, if your course is at least 25% of a full-time course each year (so a 4 year course rather than 1 year) – unlike now where you’d have to find the cash yourself and pay up front

Applying to a private University:

• If you are applying to a private university you can apply for a loan of up to £6,000 if you are on an approved full-time course. On approved part-time courses you can apply for a loan up to £4,500 as long as it’s at least 25% of a full-time course each year

Important to remember:

Those institutions that are charging over £6,000 have to take measures (bursaries, summer schools, outreach programmes etc) to encourage students from poorer backgrounds to apply. The government has even gone so far as to create the Office of Fair Access to help regulate the changes and make sure everyone still gets a fair chance of going to university.

Maintenance Loan

• This is a loan to cover your living expenses such as food, accommodation, travel, textbooks etc.
• The amount you get varies depending on where you study as well as your personal circumstances e.g. Living away from home and studying at a university or college outside London – £5,500
• You can find advice of support entitlement here.

Maintenance Grant

• A non-repayable grant to “top up” the maintenance load, intended for living expenses only
• If your household income is £25,000 or less you can qualify for a full maintenance grant of £3,250 (up from the current grant of only £2,906)
• If your household income is between £25,000-£42,600 you can qualify for a partial maintenance grant – they reduced the upper limit for this by £7,300
• Estimate your grant

Scholarships and bursaries

• To help those less well off in applying to university, the government is also bringing in ‘The National Scholarship Programme (NSP)’ starting in September 2012
• There are also various scholarships offered by universities on an individual basis and there are guidelines available
• To find out exactly what bursaries, awards and scholarships are available at your university, you’ll have to contact them directly

National Scholarship Programme

• Gives financial help to students who met set criteria agreed between the university and the Office for Fair Access, though students still have to apply individually to the university to gain access to the programme
• The institution then decides who to give further help to from this group
• Any awards from the NSP are in addition to any other loans/grants you apply for, apart from help with fees
• Help will vary from each college or university – it could be a cash bursary, subsidised accommodation or some other form of support
• Here is a List of universities and colleges offering NSP

Other financial help

• This is available to those students with dependants or disabilities. There is information on the various types of finance available

Repayment

Despite the loan size being larger and therefore taking longer to pay off, Martin Lewis claims that of all the debts you can have this is a much better one than any of the others!
Basics:
• You only start to pay back what you when you start earning over £21,000
• It is a “progressive” repayment – the more you earn, the more you pay back
• Your student loans don’t go on any credit files (this means it won’t affect your credit rating, ability to get a mortgage, etc.)
• Debt collectors will not chase after it – if you still haven’t managed to repay your loan after 30 years it will be wiped off. Unfortunately the fact that you don’t have to start paying for longer does mean you accrue more interest and will have a larger debt for a longer time. However, as this isn’t treated like a normal loan, it should really be seen as a kind of graduate tax
• Increased borrowing doesn’t increase your repayments – it just means you’ve got more to repay in the long run
• Student charters have been created at all universities to demonstrate what you’re getting for your money

A comparison of the current repayment system to the new one shows that repayments will be £540 lower than now!
There are also loan repayment calculators from direct.gov and the < a href=”http://www.thecompleteuniversityguide.co.uk/student-loan-repayment-calculator” target=”_blank”>complete university guide.

Rates of interest on repayments

For full-time students:
• Interest on loans will be applied at inflation plus 3% while you are studying, and up until the April after you leave university
• From the April after you leave university, if you are earning below £21,000 interest will be applied at the rate of inflation
• For graduates earning between £21,000 and £41,000 interest will be applied between inflation and inflation +3% on a gradated scale depending on income
• For graduates earning above £41,000 interest will be applied at inflation +3%
• There is more on this topic from the Department for Business Innovation and Skills
For part-time students:
• Interest on loans will be at inflation plus 3% while you are studying and up until the April you are due to start repaying
• From the April you are due to start repaying, the rate of interest on repayments is the same as full-time students
• There is more on this topic from the Department for Business Innovation and Skills

Other helpful links:

• Martin Lewis’ moneysavingexpert.com 20 key facts on student loans 2012
• UCAS’ guide
• The Complete University Guide
• Direct Gov’s Guide
• The Department for Business Innovation and Skills FAQ on student finance from September 2012
• Times Higher Education Guide on tuition fees 2012-2013