Universities charge tuition fees for their courses. These are capped at £9,250 per year for home students, with fees for most courses set at or close to this level. Students living in England and studying for their first undergraduate degree can take out a government-subsidised loan to cover the full cost of tuition. In addition, students are eligible for maintenance loans to cover part of their living costs while they are studying. The maximum amount they are entitled to borrow depends on their living situation and their household income (typically their parents’ income).
Students are liable to start repaying their loans from the April after they finish their course. For employees, student loan repayments are deducted automatically from their earnings by their employer. How much graduates repay depends on their earnings: graduates make no repayments if they earn below a certain threshold (currently £27,295) and repay 9% of their earnings above that threshold. Interest is normally added to the loan balance at a rate between the rate of RPI inflation and RPI inflation plus 3%, depending on a graduate’s earnings. Any outstanding balance is written off at the end of the repayment period (currently 30 years) with no adverse consequences for graduates.
Under previous policy, the repayment threshold – the amount graduates can earn before making loan repayments – was set to rise each year in line with average earnings. This meant that a graduate whose earnings rose only in line with the economy-wide average, who was not becoming better off relative to other workers, would see the same share of their earnings protected by the repayment threshold.
