16 Student Finance myths debunked
We read about Student Loans and interest rate increases in the media all the time – but what does it all actually mean? We debunk some of the most common Student Finance myths...
Student Finance is complicated enough as it is, so it doesn't help matters when misinformation is constantly being thrown around the place.
In our Student Money Survey this year, we found that a half of students don't understand their Student Loan agreement, and over half worry about paying it back.
Arming yourself with the facts when it comes to this stuff is extremely important, and for many young people it can even determine whether or not they go to university at all.
And while we certainly don't agree with many aspects of Student Finance, it's often the case that the situation isn't half as bad as it first seems. We hope you'll use this guide to separate fact from fiction, and help spread the (correct!) word about how all this Student Finance stuff actually works.
16 Student Finance myths busted
UK student debt is the worst in the world
This is something we see thrown around a lot in the media, but please don't let this scare you!
While tuition fees in England are indeed some of the highest in the world, it's important to remember that how we pay for university here is so different from many other countries (like the US) that it's not really a fair comparison.
Although tuition fees here are high (too high, in our opinion!) you don't have to pay anything up front and student loans are funded by the government. As you'll see below, the repayment terms are manageable, won't affect your credit rating and the chances are, you won't end up paying it all off before it's wiped anyway!
In contrast, private student loan lenders in the US are notoriously unsympathetic of students' personal circumstances. Six months after graduation, they're already knocking on your door looking for repayments whether you can afford them or not – that won't happen in the UK!
If you pack your bags and held to another country to study, fees might be cheaper – but you won't get the same level of financial support, which means paying more up front.
You need to be wealthy to go to university
While tuition fees are now over £9,000 a year, and you'll need to pay for living costs on top of that, you don't need to pay anything up front! The government will cover your tuition fees with your Tuition Fee Loan, and they'll also give you a Maintenance Loan to cover your living costs.
The lower your household income, the more money you'll receive as a Maintenance Loan, as Student Finance understand that your parents might not be in a position to support you financially while you're at uni - you can see exactly how much money you could receive based on your household income here.
Although this means that those from lower income backgrounds graduate with more debt than those from wealthier families (and therefore will accumulate more interest), current repayment terms mean you'll likely not pay off your full debt anyway.
As well as this, there's a whole load of scholarships, bursaries and grants to help you if you're really strapped for cash.
However, many students do report that the Maintenance Loan they receive isn't enough to cover their living costs at uni, and 76% of students have turned to a part-time job at uni to boost their income. There are loads of ways to make money at uni if you're worried you might be low on funds.
More debt means higher monthly repayments
What many don't know is that while the increase in tuition fees means you'll graduate with more debt, you'll actually pay back less each month than students did previously.
This is because how much you repay each month depends on how much you earn, not how much you owe.
You'll only repay 9% of anything you earn above £25,000 (or above £18,330 if you went to uni before 2012) - note that this is NOT 9% of everything you earn, as is sometimes reported.
For example, if you're earning £27,000 (so £2,000 above the £25k threshold), you'll repay 9% of that £2,000 (£180) over the course of the year, which works out at just £15 a month.
Obviously if you're lucky enough to get a high-paid job when you leave uni, you'll repay more. If you're earning £34,000 annually, you'll pay 9% of £9k (the difference between your salary and the £25k threshold) which is £810 a year, or £67.50 a month.
You'll be paying off student debt your whole life
No matter how big your student debts are, if they're government loans (this includes the normal Tuition Fee Loan, Maintenance Loan - anything you get through Student Finance basically) and not loans taken out with a private lender, they'll be wiped after 30 years (or 25 years if you went to uni before 2012).
If you go straight into uni from school at 18 and graduate at 21, this would mean your repayments will stop when you're 52 (repayments start the year after graduation), even if you've barely made a dent in repaying them.
Find out how much of your loan you'll have paid off before it gets wiped using this student loan repayment calculator.
You should pay off your student loan as soon as possible
While the decision of how and when you repay your loans is entirely up to you, we'd strongly advise against trying to repay your loan early.
Repaying early would reduce the amount of interest you pay overall, but in most cases it's extremely unlikely you'll even get to the point of paying off your accumulated interest at all before the 30 years are up and it gets wiped.
Therefore, if you start trying to pay your loan off quickly, you could end up paying off money that you wouldn't have paid back otherwise.
For those who have serious hopes of becoming a millionaire with a mega salary once you graduate (in which case you'll probably be on track to pay off your loan in full before the 30 years are up) - why not look into investing your cash instead?
If the interest on your loan is growing at a rate of 6.3% (which is the current rate for high earners), you might feel pressured into paying the whole thing off if you know you've got the spare cash. However, a savvy investor could easily get a return of 7%+ on that cash - definitely something to think about!
For more guidance on how you quickly you should repay your loan, check out our guide to understanding your student loan repayments.
All unis will be allowed to raise tuition fees
Back in 2012 when the last wave of tuition fee hikes occurred, we were all told that only the top unis would be charging £9k, but as we all know, in the end everyone jumped on the band wagon and started charging full whack.
A lot of people worry that a similar thing could happen again, but as things stand, universities are only allowed to increase tuition fees in line with inflation. This is why fees increased from £9,000 a year to £9,250 a year in 2017/18.
If the Teaching Excellence Framework comes into effect in 2020 as proposed, only those unis which achieve a 'silver' and 'gold' rating will be able to increase their fees in line with inflation, while 'bronze' universities, can increase fees by 50% of inflation.
So this means that while yes, tuition fees will likely increase, they'll only do so in line with inflation, which means they won't actually end up more expensive in real terms.
If you don't repay your student loan, the bailiffs will come knocking
You'll never be expected to keep up with repayments if you're out of work or working in a job that pays below the £25,000 threshold.
Better still, you won't even be responsible for sorting out the repayments yourself, as they'll be automatically deducted from your salary each month without you having to do a thing (although keep an eye on your pay slips to make sure you're not being overcharged or paying back too early).
This essentially means you'll only ever pay back your student loan when you're able to, and there's no way the debt collectors will ever come demanding payments.
The government keeps increasing the interest rate on your loan
Understanding the interest rate on your loan can be a total headache, and it's extremely common for students to get this bit wrong. A great example of this was when a graduate's letter complaining about the unfair interest of his student loan went totally viral, but as we pointed out, was factually incorrect.
The maximum interest that the government can charge on student loans is RPI+3%, but RPI naturally goes up and down over time.
Therefore, when you read about student loan interest rates going up, that's not because the government have changed them, but because RPI has gone up with inflation.
You can avoid tuition fees by studying outside of England
This one does have some truth to it, but is mostly myth!
Firstly, tuition fees are only free in Scotland for Scottish residents and non-UK nationals from the EU. So if you're an English student looking to escape the £9k+ a year fees, Scotland isn't your answer.
You have to live in Scotland for at least three years prior to applying to university to be eligible for the free fees, and even then your application might be denied if they think you've just moved there for the sole purpose of getting uni for free.
You could get tuition fees much cheaper (or entirely free) by studying somewhere in Europe instead, but Student Finance won't be available to you. You'll have to use your own savings or a part-time job to cover all your living costs while you study.
You start repaying your loan as soon as you graduate
You won't be expected to pay back a penny of your loan until the April following your graduation, at the earliest. Therefore, if you graduated in June 2017, your first payment won't be taken until April 2018.
This means your first year of post-uni life is payment-free, and even then you'll only start repaying if you land yourself a nice graduate job and are earning above the £25,000 threshold.
Your parents have nothing to do with your finances at uni
OK, so whether we agree with this is another question, but it's worth clarifying that the government do expect you parents to be involved in your finances at uni.
The government decide how much Maintenance Loan you should receive based on your household income, because they expect your parents to make up the shortfall.
In fact, our research has found that parents contribute an average of £138.50 a month to plug the gap.
The assumption is that students with wealthier parents can afford to foot the additional cash to put their child on an equal playing field with those from lower income households who receive the maximum Maintenance Loan.
In reality, some students will get more financial support from their parents than the government recommends, and some won't receive a penny. The issue here is that although the government uses household income in deciding how much your loan should be, supplementing it is only a guideline and not an obligation.
Student Finance terms are set in stone
This is a difficult one to swallow, we know, but if history has taught us anything, it's that nothing the government says is 100% set in stone - even when contracts are involved!
One such example is the repayment threshold - the amount of money you need to be earning before you start repaying your student loan.
The government originally said that this threshold would increase in line with inflation, but then decided to freeze it at £21,000 (causing national outcry), before doing a U-turn and increasing it to £25,000.
As many have pointed out, if a commercial loan provider pulled a stunt like this, they wouldn't get away with it, but the Tories have wriggled their way out of this one by pointing out an all-important clause on page three of the Student Loan Agreement that states changes to the terms can be made at any time.
Unfortunately, this means we can never be totally certain they won't make further changes later down the line, but hopefully the backlash they received on this one will make them think twice next time!
Your student debt will affect your credit score
Your credit score is crucial in determining whether you're accepted for financial commitments, and can affect everything from your phone contract to getting a mortgage on your first house.
A lot of students worry about the effect having a large chunk of debt can have on their credit rating, but the good news is that your student loan debt won't appear on your credit report, so it won't affect your score at all (phew!).
The only way they'll be able to find out if you have a student loan at all is if they ask you as part of the application process, and they'll likely only to do so to calculate your net earnings.
Your student loan will stop you from getting a mortgage
Your student loan repayments do affect your mortgage application to a small extent, but it's unlikely they'll ever stop you from getting a mortgage outright.
When applying for a mortgage you'll undergo something called an 'affordability check'. This is where a mortgage lender checks your monthly income and outgoings to see how much you'll realistically be able to pay up each month (and decide how much cash to lend you accordingly).
As your loan repayments will be coming off your paycheck each month, you'll technically be able to afford less of a mortgage repayment each month than you would do if you had no student loan repayments to make.
However, the amount you repay is so little in the larger scheme of things (i.e. only 9% of anything your earn over £25k) that it shouldn't make much of a difference, and certainly shouldn't impact your ability to actually get a mortgage.
If you want to do a Master's, you need to pay for it yourself
Since August 2016, the government have finally started offering postgraduate loans of up to £10,609 for those looking to do a Master's degree in the UK.
This is the first time loans have ever been made available for postgraduate study, and as Master's courses tend to be on the pricey side, in the past many students have opted to go to Europe to for postgraduate study instead - where it's a lot cheaper, and sometimes absolutely free.
However, it's important to note that the £10,606 loan is to cover both your tuition fees AND living expenses - and most Master's courses sit at around £9,000-£11,000. This means that the loan will likely only cover your tuition fees, and you'll have to find the money to cover your living expenses elsewhere.
As of 2018, the government have introduced student loans for PhDs as well - they'll give you up to £25,000 to cover the entire course.
You don't have to repay your student loan if you move abroad
As much as we'd love this one to be true, this is certainly a myth - and a dangerous one at that!
No matter where in the world you're living, if you're earning over the equivalent of £25,000, you should be making student loan repayments.
The annoying thing is that you have to take the initiative of contacting Student Finance yourself to let them know you're working abroad and set up your repayments - it won't happen automatically like it does in the UK.
If you avoid paying up, you'll be expected to pay the backlog of months you've missed (sometimes in a oner!) when you return to the UK, so it won't work as a trick to defer payments either (unless you're not earning while you're abroad, of course).
Heard something through the grapevine and still not sure if it's fact or fiction? Hit us up in the comments below!