Why students shouldn’t fear fees

Martin Lewis, flanked by eager student money-savers

As Head of Student Recruitment at Edge Hill University and Chair of the Higher Education Liaison Officers Association (HELOA), I talk to a lot of students and young people about facing the prospect of £9,000 tuition fees for the first time – and you may be surprised that my response is usually to try and encourage them not to worry about it.

For many, the fears are very real. Research for Student Finance Day – run by the Independent Taskforce on Student Finance Information, of which HELOA is part - shows 63 per cent of English 14-18 year olds and 60 per cent of those starting university in 2012 worry about how they’ll repay their loan if they are unemployed or a low earner after university. Yet, when you’re just starting out, this should be the last thing on your mind.

With the new English student loan system, the most important thing to remember is that it isn’t about how much you borrow, but what it costs you.

Firstly, no one needs to pay university fees upfront. The Student Loans Company pays them and gives you a loan for living costs. You only need to repay once you graduate, if you earn enough.

This year’s and 2013’s new starters will repay 9 per cent of any income after graduation ABOVE £21,000 a year. So the more you earn, the more is repaid.

If you earn under £21,000, you don’t repay a thing. Earn £22,000 and you repay just £90 a year. Earn £31,000 and it’s £900. Financially at least, it’s effectively a no-win, no-fee education.

After 30 years, even if you’ve not repaid a penny, the debt’s wiped. In fact, even many people starting on £25,000 graduate salaries won’t repay all they owe within 30 years (test your salary at www.studentfinancecalc.com).

There are a few other areas where people’s fears can be unfounded:

• There’s no need to worry about debt collectors: Loan repayments are taken from the payroll, just like any other tax. You’ll get your salary after it’s taken, so no one will chase you.
• Don’t think you can’t go for a £9,000 course because you can’t afford the repayments.  Monthly repayments depend on what you earn, not what you borrow, and it’s the same for a £6,000 or £9,000 course. Unless you earn enough after you’ve finished your course to repay in full over 30 years, even in total you won’t actually repay more.
• Students will be charged interest at rates up to inflation (RPI) +3 per cent for loans. Yet remember, while you may see the interest added to your account, it only impacts the total cost to you if you earn enough to clear the original borrowing within 30 years.
• Student loans shouldn’t stand in the way of you getting a mortgage. Current graduates repay when they earn £15,795, new starters £21,000 – which is actually better for getting a mortgage as it means you’ve got relatively more cash in your pockets (although current graduates’ smaller loans mean they’re repaid earlier, so after that it flips the other way).

For students from Scotland, Northern Ireland and Wales, the system may be different, so check with your own funding agencies.

Of course, with higher fees, many people will pay more over time, and this is something no-one should ignore. But it’s important to think more about how you’ll be financially affected in reality, than worry based on misunderstandings. So whether you’re about to start university or still considering it, take time to understand the true cost of the new system – so that you can then concentrate on enjoying its benefits.

The Independent Taskforce on Student Finance Information is headed by Martin Lewis of MoneySavingExpert.com, and you can see more of his myth-busting advice here.

Liam Owens is Head of Student Recruitment at Edge Hill University and Chair of the Higher Education Liaison Officers Association (HELOA), as well as part of the Independent Taskforce on Student Finance Information.