The political spittle firing both ways about 2012’s £9,000 university fees has a nation scared.
Yet little’s been said about the practical impact on students’ pockets – and with 2012 starters applying soon, it’s about time it was.
The rows have left parents and future students misinformed and believing myths. I ranted about this to MPs of all parties, saying: “for 20 years you’ve educated our youth into debt when they go to university, but never about debt.”
Soon afterwards, I found myself with a then-unrefusable invitation to head a taskforce to explain how this system works.
I agreed on the basis that it would be independent, I could still say I was no fan of the changes, and the universities and National Union of Students were on board.
So forget what you’ve heard. Let me take you through ten key facts everyone should know about the changes: * Changes only hit new September 2012 starters.
Universities can charge between £6,000 and £9,000 from September 2012, provided they use some of the extra cash to pay for bursaries or give fee waivers to students from poorer households.
Existing students and 2011 starters stick with the current system and fees (max £3,290 a year), even once we get to 2012 and beyond.
* Tuition fees for full-time, first-time undergraduates are automatically paid by a special Student Loan Company.
Repayment starts the April after graduation, but only if students earn enough.
You repay nine per cent of earnings above £21,000 a year, so if you earn £31,000, you repay £900 a year.
If you start repaying, then if earnings drop, your repayments drop accordingly. In 2017, the year after most 2012 starters begin repaying, this threshold starts rising each year, in line with average earnings.
You stop owing when you’ve cleared the debt or 30 years pass (or you die). If you never earn over the threshold, you’ll never repay.
* Repayments are the same whether fees are £6,000 or £9,000.
Graduates’ monthly repayments are based only on how much they earn, not their borrowing, so fees are irrelevant for this.
* Current graduates pay the RPI rate of inflation. Yet in 2012, while studying, the interest is inflation plus three per cent.
From April after graduation, earn under £21,000 and it’s just inflation. Above that, it rises gradually until at £41,000 it maxes out at inflation plus three per cent.
* You will owe money longer and may pay a lot more. You pay less each year, the original debt is bigger and the interest rate is higher, so it will take much longer to repay the loan.
For many, £9,000 fees won’t cost them any more. The combination of lower repayments, higher interest and bigger fees mean many are unlikely to repay in full over the 30 years – even at just the £6,000 tuition fees level.
Even some with starting salaries as big as £30,000 won’t repay in full. In which case, there’s no additional cost of doing a £9,000 course.
* Fees are also rising for part-timers to £4,500 to £6,750. Yet for the first time part-timers are now eligible for tuition fee loans, exactly like full-timers (though not maintenance loans).
* Students also get maintenance (living) loans on the same terms for food, books, accommodation and travel. Up to £4,375 is available if living with parents, £5,500 away from home and £7,675 in London.
* If your household income (either parental or your own) after tax is under £25,000, you get a £3,250 maintenance grant that NEVER needs repaying.
The grant shrinks then vanishes above £42,600 income, though the amount of loan you get shrinks if you get a grant.
Those from lower income homes are likely to be offered incentives of up to £3,000 a year by universities.
If there’s a choice between a fee reduction or cash, most should go for cash. The simple reason is, as many never repay in full, unless you earn a big salary after graduating, you simply won’t pay any less due to the fee wavier.
* It’s repaid through the income tax system, you only repay it if you earn over a certain amount, and it does not go on credit files. So for parents it’s better to think of it as a tax that your chid will pay if they succeed in earning more, rather than a debt hanging over their head for life.
Those who gain financially from going to university will repay a lot: those who don’t will pay little or nothing.
* If parents (or students) have got the cash, you can just pay the fees upfront. Yet for the vast majority of people, on pure financial logic, this is a bad move.
Imagine you pay £27,000 over three years in fees. Then after graduation your child becomes a low paid artist or full-time parent. You will have paid for something that never needed repaying. Even if they earn over £21,000 they still may not have repaid anywhere near as much as you paid.
So unless they’re guaranteed a lifetime of high pay (as there is an interest cost while at uni) if the cash is there, its safest to put it in a high paying cash ISA/savings during studies and take the loan.
Afterwards if it looks like it’ll be repaid, clear the debt then. Or, alternatively, it may simply be better used towards lowering a mortgage or car loan – worse and costlier forms of debt.
If you have questions or want to try the soon-to-be launched repayment calculator, which will show how much you’ll repay, see the expanded guide at moneysavingexpert.com/students2012.