Student finance: The debt debate

University tuition fees are on the rise – but what impact will this have on new students?

New student finance rules have had students worrying about their loans and loan terms (Alamy)

The new fees structure for students at state-funded universities has been debated ad infinitum since it was announced back in October 2010 - and you would be forgiven for thinking that we should have grasped the concept by now – but it's a complicated system, so there's still a great deal of general confusion remaining.

So what will this years' cohort and those who start higher education in future actually pay back? When will they pay it? And, perhaps most crucially, is the commonly held fear that those from less advantaged backgrounds could be priced out of education founded on fact?

The truth is that while the majority of universities will be able to charge up to £9,000 a year for courses starting from September, these fees are not paid up front – which means your parents don't need to blow their savings just to get you to freshers' week. In fact, university fees aren't paid up front at all: they are covered by the Government, and then repaid by graduates.

A student starting university in September 2012 will start to settle the debt after they have graduated and found employment. At that point, they will pay back 9 per cent of their salary over £21,000. Compare that to a graduate who started university in 2011, before the fees were raised, and you may be surprised. While earlier graduates will also repay their fees at 9 per cent of their salary, they will start when they earn just £15,000 – which means a graduate earning £22,000 who started a course in 2011 will make monthly repayments of £52.50, while one who starts this year will pay £7.50 a month. What's more, under the new system, a graduate who never earns more than £21,000 will never pay back a penny.

Another point worth noting is that, in terms of how much you repay, it makes absolutely no difference whether your course charges £6,000 a year or £9,000 a year – you will pay the same (9 per cent of your salary over £21k). The difference is the length of time it will take to clear the debt.

That leads us to the final and crucial point. While it is true that the majority of tomorrow's graduates will be better off each month than yesterday's, their overall debt will be greater, and repayments will made for a far longer period of time. There is a cut-off point, however. Any outstanding debt still remaining 30 years after you graduate will be wiped. So that's something to look forward to.