Your introductory guide to student finance

Going to university is a watershed moment. You will leave home, make new friends for life and start working towards the qualifications and skills needed for a prosperous working career.

But working towards the cap and gown and a degree certificate doesn’t come cheap. There are plenty of costs to university beyond baked beans and cheap shots.

Students need to pay for tuition fees as well as living costs such as rent and food bills.

Many rely on parents to help fund their studies. But students and their parents don’t necessarily have to cover all the costs of university upfront themselves.

There is help from the Government in the form of student finance.

Jump to:

• How does student finance work?
• How much does university cost?
• Tuition fees
• Maintenance loan
• Postgraduate loan
• Loan repayments
• Interest rate on student loans
• The best student bank accounts for 2023
• Financial support

How does student finance work?

Student finance helps undergraduates and postgraduates with the cost of university.

This is money provided by the Government through the Student Loans Company (SLC).

There are student finance bodies in England, Scotland, Wales and Northern Ireland. Students need to apply for the finance from the area they are from or normally live in.

Money can be accessed to cover tuition fees as well as university living costs such as rent or food bills.

Some student finance used to be grants but this stopped in 2017 and now the money is given as a loan, which means it needs to be repaid once a student graduates and starts earning above a certain level.

Student finance is made up of tuition fees and a maintenance loan. You can apply for just one or both and whatever is borrowed will be combined to be repaid once the student finishes their course.

How much does university cost?

Going to university will be the first time many students live away from home and are expected to manage their own finances.

Most students will be used to having everything from their energy bills to food shopping covered when living at home so it can be a shock when they move out and need to manage a household budget.

Savvy students can save money by shopping around for discounts. This can include schemes that give you free food, travel and cinema visits.

But student finance can come in handy especially with the total cost of university reaching around £61,000 over three years, according to the Save The Student website.

This is made up of a range of factors including tuition fees, course materials, rent, transport, food and the odd pint in the student union.

The location of the university will also have an influence on the costs with some parts of the country more affordable than others for studying, going out, paying rent and food.

NatWest’s 2023 Student Living Index, which measures how much it costs to study and live in the main UK cities as well as the typical part-time pay to help cover the bills, found Edinburgh works out as the most expensive, while Bournemouth and Cardiff are the most affordable.

Perhaps more importantly, London is the most expensive place for a pint, with students expecting to pay £5.51 per drink, followed by Cambridge with an expected average cost of £5.07. This contrasts with Lancaster, where students can expect to pay just £3.81.

Student finance can help cover many of these costs, although it is important to budget so the money doesn’t all get spent in the pub.

Tuition fees

There is no set tuition fee in the UK but universities can charge up to £9,250 per academic year.

This covers everything from your registrations to lectures, use of facilities and exams.

Over a three-year course, that is £27,750, which can be a lot for a student and their parents to budget for.

A tuition fee loan can cover all of this and you need to apply to student finance to get the money. 

Tuition fee loans are paid in three installments at the start of each term. It is sent directly to the university to cover the fees so you won’t actually see it but it is best to apply at least six weeks before the course starts so the money arrives on time. 

While fees have not risen, the terms of loans have. As a result, today’s students could end up paying 50pc more than previous students and more parents may be considering paying their child’s fees upfront.

Maintenance loan

The living costs part of student finance is known as a maintenance loan. It is a payment towards items such as rent, food and other bills.

Unlike the tuition fees loan, which pays the full amount of the costs to anyone, maintenance loans are linked to household incomes of the applicants, so the maximum you can borrow is linked to your parents’ income. 

The amount also depends on where the student lives. The maximum maintenance loan if a student stays home with their parents is £8,400 but it rises to £9,978 if they move out and study outside of London. Students who go to a university in London and live in the capital can get up to £13,022. 

But the support drops by £1 for every £7.01 of total household income above £25,000 until 46.6pc of the full maintenance loan remains. That means the minimum maintenance loan is £3,698.

Postgraduate loan

Student loans aren’t just for undergraduates. You can also get support if you are studying for a master’s degree.

This is known as a Postgraduate Master’s Loan and covers course fees and living costs. The support is worth £12,167 if your course started on or after August 1, 2023.

Loan repayments

A person using the full student finance on offer, so £9,250 from a tuition fees loan and £13,022 in maintenance support, would leave university with debts starting at £66,816 before interest.

That is a scary amount of money for someone to start their working life owing. But unlike a traditional loan, the money won’t necessarily have to be paid back straight away or, in some cases, you may never pay it back.

Repayments only become due in the April after a student graduates and once they earn above a certain threshold, depending on when and where they started their course.

For example, students who went to university in England between September 1, 2012 and July 31, 2023 will be on “Plan 2” student loans. Under these plans, repayments only start once the student earns above £27,295 and any loan that’s left is written off after 30 years.

The threshold has been lowered for anyone starting a course in 2023 under new “Plan 5” student loans. Repayments start once a student earns above £25,000 and the loan is only written off after 40 years.

Repayments are based only on the portion of salary above the earning threshold and the money will usually be taken directly from your payslip unless you are self-employed in which case you would repay through self-assessment.

Many people may never earn enough to fully repay the loan and there is no pressure to, but it is worth bearing in mind that the level of student debt will be considered by banks when applying for other finance such as a mortgage, so could impact how much can be borrowed in the future.

That creates a quandary for parents as you may want to help your child avoid being lumbered with student debt by paying their tuition fees upfront, but on the other hand they could learn some valuable financial life lessons about managing a budget and may never have to repay the debt.

Interest rate on student loans

Interest is added on top of student loans at different rates depending on what plan you are on. Unlike conventional loans, you do not need to start paying off the money straight away but the interest is added as soon as the money is paid out.

The amount of interest charged also depends on when the loan was taken out. It is set at the start of each academic year based on the retail prices index (RPI) figure from the previous March.

Under Plan 2 student loans, the interest added while studying is based on the RPI plus 3 percentage points.

Anyone earning below the £27,295 threshold once they finish their course will only have interest added at RPI. The interest rate charged once a graduate earns more than the threshold increases by RPI plus 3 percentage points until they earn £49,130, when it is capped.

For students on new Plan 5 loans, interest is charged in line with the RPI. That means paying lower levels of interest but repayments start sooner as the earnings threshold is now £25,000.

The best student bank accounts for 2023

You will need to set up a bank account to receive the maintenance loan and student accounts typically come with handy perks.

From interest-free overdrafts and cashback, to railcards and even a subscription to a meditation app, there are plenty of freebies on offer.

Critics often highlight that the maintenance loan is not enough to cover actual living costs and doesn’t keep up with inflation so a student may still need to get a part-time job or receive extra financial support from their parents to pay the bills.

Remember too, that your first foray into banking might make you a target for scammers and you will need to be alert to keep your money safe.

If the worst does happen and you are scammed, there are some things you should do straight away.

Financial support 

• Low-income families:  Parents who are studying full time may be eligible for a Parents’ Learning Allowance grant worth between £50 and £1,915 a year and a Childcare Grant of up to £188.90 a week for one child and up to £323.85 a week for two or more depending on household income.
• Adult Dependents’ Grant: If you’re a full-time student in higher education and an adult depends on you financially, you can apply for a grant of up to  £3,354 for the 2023-24 academic year.
• Disabled Students’ Allowance (DSA): Students can apply for extra support from Student Finance to cover the study-related costs due to a mental health problem, long-term illness or any other disability. This money doesn’t have to be repaid.

Universities may offer bursaries and scholarships as well as hardship funds for families on low incomes, people with a disability or single parents.