Student loans – how to apply for them and how much interest you'll be charged

STARTING university means upping the studying game but it also means coming to terms with taking out what is, for most people, their first loan.

In 2012 there was an increase in tuition fees, rising to £6,000 a year – with top-tier universities charging students £9,000.

But now they've increased again, with the cap now at £9,250 a year.

In addition to borrowing money for university fees, up to £11,354 can be loaned to students for living costs – depending on the place of study and their parents' financial background.

This means that the average graduate will leave university with over £50,000 worth of debt.

That said, Scottish, Welsh and Northern Irish students – including those studying at English universities – receive financial support from their "home" government so their fees and loans are dependent on the support they receive.

With loans and repayments all sounding overwhelming, we have broken the application process down for you.

How to apply for a student loan

Prospective university students can apply for a student loan through the UK government website.

Students have up until nine months after the start of the academic year to apply for their loan.

The most common practice is to set up a student finance account online – this requires information such as household income, proof of identity and a loan declaration as part of the application.

How to repay your student loan

When you start repaying your loan, how much you repay each month is dependent on when you studied and your salary after finishing education.

Students going to university after September 1, 2012, have to start repaying their loan the April after they finish their course if their income is more than £25,725.

From April 6, 2020, this repayment threshold will become £26,575 for new graduates.

You'll have to repay 9 per cent of everything you earn above this amount and this is taken directly from your paycheck – the same as tax – so you don't have to worry about manually repaying.

If you're self-employed or earn under the threshold, you don't have to pay back your student loan until you become employed and earning over the threshold.

If you get a pay rise, the amount you have to repay each month will also increase – so you might notice the repayments as your wages go up.

There is a 30-year cut off though, so any debt remaining 30 years after a student graduates will be wiped, under the current system.

If you want to make voluntary repayments, you can do so through the Student Loans Company.

How the interest rate works

The major changes to the cost of tuition fees in 2012 also saw major changes in the interest when repaying the loans too.

For student who started university from September 2012, while you study, your loan accrues RPI inflation (retail price index) plus 3 per cent on the outstanding balance.

Upon April 1 after you graduate, the interest rate changes.

For those earning under £25,725, your loan accrues RPI inflation, but for those earning up to £46,305, the interest gradually rises from RPI to RPI plus 3 per cent the more you earn.

For example, if you earn £1,000 over thw £25,725 limit, you accrue 0.15 per cent extra interest, according to consumer site Money Saving Expert.

Those on a salary of over £46,305 accrue RPI inflation plus 3 per cent.

The rate you pay changes annually in September, when the previous March's RPI inflation rate is used.

March 2019's RPI inflation rate was 2.4 per cent, so the interest charged from September 2019 will be between 2.4 per cent and 5.4 per cent.

The effect of a student loan on your credit score

The good news is that your student debt won't affect your credit score.

Bank and lenders only look at your application form, any previous dealings they've had with you, and the information on your credit file – but student loans are not listed here.

When it comes to applying for a mortgage, the application form might ask about your student loan but it won't affect your ability to get a mortgage as much as people usually think – although it will of course effect how much disposable income you have to make mortgage repayments.

How you pay if you're a part-time student

Part-time university students pay around £4,500 to £6,935 in tuition fees.

Since 2012, part-time undergraduates have been eligible to apply for a student loan – on exactly the same terms as full-time students.

Courses which started on or after August 1, 2018 also qualify for maintenance loans or grants.

You can apply on the UK government website.

Postgraduates

If it is your first time studying for a postgraduate Master's degree, you can apply for a loan from the Student Loans Company to pay for your course.

From August 2019, students can apply for up to £10,906 and you only need to repay this once your course finishes.

PhD students are also eligible to apply for a Doctoral loan which can cover up to £25,000 worth of tuition fees. They apply for this via the UK government website too.

Is education becoming too pricey for people to pursue? Students are set to owe a collective £8.6billion in interest on their loans in the next five years.

Meanwhile, MoneySacingExpert's Martin Lewis warns people against the current term for student loan repayments and claims it is inaccurate.

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