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Student Finance

15 Student Finance myths debunked

We hear a lot about Student Loans and interest rate increases in the media. But what does it actually mean? We debunk some of the most common Student Finance myths...

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Student Finance is complicated enough as it is. It really doesn't help when incorrect info is thrown around.

In our Student Money Survey this year, we found that two in five students don't understand their Student Loan agreement. On top of this, almost half worry about paying it back.

Arming yourself with the facts when it comes to this stuff is extremely important. For many young people, it can even determine whether they go to uni at all.

And while we don't agree with many aspects of Student Finance, the situation often isn't as bad as it first seems. This guide will help you separate fact from fiction and explain how Student Finance actually works.

Most of the information in this guide applies to Student Finance in England. But we also have guides on Student Finance for Scottish students, Welsh students and Northern Irish students.

15 misconceptions about Student Finance

Here are the most common myths about Student Finance, with key facts and info to clarify them:

  1. UK student debt is the worst in the world

    money in a purse

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    This is something we see thrown around a lot in the media, but please don't let this scare you.

    Tuition fees in England are some of the highest in the world. However, the way that we pay for university here is different from many other countries (like the US). So, it's not really a fair comparison.

    Tuition fees here are high (too high, in our opinion). But, you don't have to pay anything upfront and Student Loans are funded by the government.

    As you'll see below, the repayment terms are manageable and won't affect your credit rating. Plus, the chances are, you won't end up paying it all off before it's wiped.

    In contrast, private Student Loan lenders in the US are notoriously unsympathetic to students' personal circumstances. Six months after graduation, they're knocking on your door looking for repayments whether you can afford them or not.

    While there are private Student Loan lenders in the UK, consider the alternatives first.

    If you pack your bags and head to another country to study, tuition fees might be cheaper. But, you won't get the same level of financial support, which means paying more upfront.

  2. You need to be wealthy to go to university

    While tuition fees are now over £9,000 a year for most UK students, and you'll need to pay for living costs on top of that, you don't need to pay anything upfront. The government will cover your tuition fees with your Tuition Fee Loan. You can also get a Maintenance Loan to cover your living costs.

    The lower your household income, the more money you'll receive as a Maintenance Loan. This is because Student Finance understands your parents might not be in a position to financially support you at uni.

    This does mean those from lower-income backgrounds graduate with more debt than those from wealthier families (and so will accumulate more interest). However, current repayment terms mean it's unlikely you'll pay off the loan in full before it's cleared in around 30 years.

    As well as this, there are loads of student grants to help you.

    However, many students report the Maintenance Loan they receive isn't enough to cover their living costs at uni.

    In fact, 66% of students have turned to a part-time job at uni to boost their income. But luckily, there are loads of ways to make money at uni if you're worried you might be low on funds.

    The repayment system for Student Loans is due to change for future students. Find out more in our article about the Student Loan changes.
  3. More debt means higher monthly repayments

    What many don't know is that, although 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.

    English and Welsh students who went to uni after 2012 currently only repay 9% of anything you earn above £27,295. Note that this is NOT 9% of everything you earn, as is sometimes reported.

    For students from Northern Ireland (or English or Welsh students who started uni before 2012), the threshold is currently £20,195. For students from Scotland, the threshold sits at £25,375.

    For example, if you're from England and went to uni after 2012 and you're earning £29,295 (so £2,000 above the £27,295 threshold), you'll repay 9% of that £2,000 (£180) over the course of the year. This 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 £36,295 annually, you'll pay 9% of £9k (the difference between your salary and the £27,295 threshold). This is £810 a year, or £67.50 a month.

    Our guide to Student Loan repayment covers everything you need to know.

  4. You'll be paying off student debt your whole life

    calculator and pen

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    No matter how big your student debts are, if they're government loans (including the Tuition Fee Loan and Maintenance Loan) and not loans from a private lender, they'll be wiped after approximately 30 years (depending on what plan you're on).

    If you go straight into uni from school at 18 and graduate at 21, this would mean your repayments will stop by the time you're 52 (repayments start the April after graduation). This is even the case if you've barely made a dent in repaying them.

    Find out how much of your loan you'll have likely paid off before it gets wiped using this Student Loan repayment calculator.

  5. You should pay off your Student Loan as soon as possible

    The decision of how and when you repay your loans is entirely up to you. However, it's not necessarily worth trying to repay your loan early.

    Repaying early would reduce the amount of interest you pay overall. But in most cases, it's unlikely you'll even start paying off your added interest before the debt gets wiped.

    So, if you try 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 4.5% (which is the current rate for high earners on Plan 2), you might feel pressured into paying the whole thing off if you've got the money. However, a savvy investor could easily get a return of 7%+ on that cash. It's definitely something to think about.

    For more guidance on how quickly you should repay your loan, check out our guide to understanding your Student Loan repayments.

  6. All universities are allowed to raise tuition fees

    Back in 2012 when tuition fees had a big increase, we were all told that only the top unis would be charging £9k. But as we all know, everyone ended up jumping on the bandwagon and charging full whack.

    Some 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.

    In 2019, the Augar Review suggested universities lower tuition fees from £9,250 to £7,500. However, it's been announced that tuition fees will remain capped at £9,250 up to and including the 2024/25 academic year.

  7. The government keeps changing your loan's interest rate

    couple calculating bills

    Understanding the interest rate on your loan can be a total headache. It's very common for students to get this bit wrong. An example of this was when a graduate's letter complaining about the unfair interest on his Student Loan went viral. But as we pointed out, it was factually incorrect.

    The maximum interest that the government can currently charge on Plan 2 Student Loans is RPI+3%. However, RPI naturally goes up and down over time.

    So, when you read about Student Loan interest rates going up, that's not generally because the government has changed them. It's usually because RPI has gone up with inflation.

    Having said that, though, the government has announced changes to how interest will be applied to Student Loans in future. Find out more in our article about the Student Loan changes.

  8. Bailiffs will come if you don't repay your Student Loan

    You'll never be expected to keep up with repayments if you're out of work or earning below the threshold.

    Better still, you won't even be responsible for sorting out the repayments yourself. They'll be automatically deducted from your salary each month without you having to do a thing. Although, keep an eye on your payslips to make sure you're not being overcharged or paying it back too early.

    If you're self-employed, your repayments will be calculated when you submit a self-assessment tax return.

    All of this essentially means you'll only pay back your Student Loan when you're able to. Debt collectors won't come demanding payments.

  9. You can avoid tuition fees by studying outside of England

    This one does have some truth to it but is mostly a myth.

    Firstly, tuition fees are usually only free in Scotland for Scottish residents. 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 moved there just to get free tuition fees.

    You could get cheaper tuition fees by studying in another country 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 your living costs while you study.

  10. You start repaying your loan as soon as you graduate

    graduates

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    You won't be expected to start repaying your loan until the April following your graduation, at the earliest. So, if you graduated in June 2020, your first payment wouldn't have been taken any earlier than April 2021.

    This means your first year of post-uni life is payment-free. And even then, you'll only start repaying if you get a graduate job with a salary over the repayment threshold.

    Even if you drop out of uni, you don't start long-term repayments until the following April. However, if you drop out mid-way through term, you might need to repay the part of the loan that covers the rest of term immediately. There's more info in our dropout repayment guide.

  11. Your parents have nothing to do with your finances at uni

    Whether we agree with this is another question altogether. But it's worth clarifying that the government does expect your parents to be involved in your finances at uni.

    The government decides how much Maintenance Loan you should receive based on your household income. This is because they expect your parents to make up the shortfall.

    Our research has found that parents contribute an average of £120.56 a month to plug the gap.

    The assumption is that 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. Some, however, won't receive a penny.

    Although the government uses household income to decide how much your loan should be, it's only a guideline and not an obligation for parents to cover the shortfall.

    Wondering how much the government 'expects' your parents to supplement your loan? Use our parental contribution calculator.

  12. Your student debt will affect your credit score

    Your credit score is crucial in determining whether you're accepted for financial commitments. It can affect everything from your phone contract to getting a mortgage on your first house.

    A lot of students worry about how their credit rating will be affected by having a large chunk of debt.

    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 know if you have a Student Loan is if they ask you as part of the application process. And, they'll likely only do so to calculate your net earnings.

  13. Your Student Loan will stop you from getting a mortgage

    Happy woman in new home

    Credit: WAYHOME studio – Shutterstock

    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 altogether.

    When applying for a mortgage you'll undergo something called an 'affordability check'. This is where a mortgage lender checks your monthly incomings and outgoings to see how much you can afford to pay each month. They'll decide how much to lend you accordingly.

    With your loan repayments coming out of your salary each month, you'll technically be able to afford a smaller mortgage repayment each month than if you had no Student Loan.

    However, the amount you repay is very small in the larger scheme of things (if you're on Plan 2, it's 9% of anything you earn over £27,295). So, it shouldn't make much of a difference. It certainly shouldn't impact your ability to actually get a mortgage.

  14. You need to pay for master's degrees yourself

    Since August 2016, the government has been offering Postgraduate Loans for master's students in England. In 2022/23, master's students in England will be able to apply for up to £11,836.

    If you're not from England, see our guides for master's students from:

    It's important to note that the £11,836 loan is intended to cover both your tuition fees and living expenses.

    Tuition fees for most master's courses sit at around £9,000 – £11,000. This means that the loan will likely cover your tuition fees, but potentially not all of your living costs.

    As of 2018, the government has also introduced Student Loans for PhD students from England and Wales. In 2022/23, you could potentially receive around £27,890 for the entire course (the exact amount varies depending on whether you're from England or Wales).

    As master's courses tend to be expensive, some students choose to study in Europe instead, where it can be a lot cheaper (or even free!).

  15. You don't repay your Student Loan if you move abroad

    As much as we'd love this one to be true, it's a myth that you don't have to repay your Student Loan if you move abroad.

    No matter where in the world you live, if you're earning over the repayment threshold, you should be making Student Loan repayments.

    You'll need to let Student Finance know you're working abroad and set up your repayments. It won't happen automatically as it does in the UK.

    If you don't repay the amount you should, you'll be expected to pay the backlog of months you've missed (sometimes as a lump sum!) when you return to the UK. So, it won't work as a trick to defer payments either.

Looking for more essential info on your finances? Head over to our guide on the vital money lessons you should have been taught in school.

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