Student Loans, by Martin Lewis of Money Saving Expert

There’s been a furore in Parliament about the scrapping of student grants. And every time politicians get lairy over such issues, the news focuses on the scrap and the real truth of what’s actually happening gets lost.

I’ve been swamped with panicked questions about student grants from students, future students, graduates and their parents, so I want to myth bust what’s really happening. In many ways people are panicking unnecessarily about the grant changes, but missing the really damaging change, which is a retrospective hike in student loans.

Student finance: The basics

When you go to university, if you’re a first time UK undergraduate you don’t need to pay upfront. The Student Loans Company pays your tuition fees for you and gives you money for living, then you owe it.

  • You only start repaying when you leave university and, even then, only if you earn over £21,000. If you don’t earn over that you don’t repay.
  • The amount you repay is proportionate to earnings. You repay 9% of everything above £21,000 (eg, earn £31,000 and, as it’s £10,000 above the threshold, you repay £900 a year).
  • If you haven’t cleared what you owe within 30 years, the debt is wiped.
  • If you never earn over £21,000, you never repay.

In many ways, financially it’s a no win no fee education.

Student LoansAn easy way to think of it is a bit like an extra income tax, with the one difference that once you have repaid what you borrowed (plus interest) it stops. For far more help on this, see my full 20 student loan myth busters guide at

I’m going to use examples for English students studying in England. For students from Wales, whether you go to university in Wales or elsewhere in the UK, the amount you borrow tends to be less, but the way you repay is the same.

I’m going to focus on the situation for students who started in or after 2012 in England, for elsewhere in the UK the loans tend to be smaller.

Q. So what’s happening to student grants?

A: Until now, students from lower income families (roughly below £43,000 income) had some of their loan replaced by a non-repayable grant for up to £3,400. From September 2016 grants are being scrapped in England and Wales. Yet there’s much confusion about this. There are two big things to note:

1) This only applies for new starters starting from 2016. Those already at university and getting grants will keep getting them.
2) This doesn’t mean they’ll have less money coming in.

New 2016 starters will get a bigger loan to replace what they would’ve got in grants.

In fact, the loan figures for new starters (not continuing students) have been upped by a chunk. This is useful, as often the big issue that hits students isn’t the size of the loan, it’s that they don’t have enough money to live on day-to-day. Rents alone eat up much of this.

Q. Isn’t this likely to really hit poor students hard?

A: You may be surprised that I’m going to say no. In many ways the big problem is the confusion and psychological deterrent, not the practical finances. For most students it makes no practical difference. The replacement of a grant with a loan will ONLY cost more for those who leave university and have long-term very high earnings. That’s because if you compare the current and new system, the fact it’s a loan and not a grant would only cost you more if you would’ve repaid your entire tuition fees, remaining maintenance loan after the grant, and interest in the 30 years before the debt wipes anyway. Most students won’t, so there’s no cost to them. In fact, my calculations estimate only those on STARTING salaries of £35,000 and up, and then above in inflation pay rises would actually pay more. So if the system remains as it is now, it’s only those from poor backgrounds who go on to be big earners who this is negative for. However, the big question is ‘will the system remain unchanged?’.

Q. What’s this retrospective hike to student repayments?

A: As I explained earlier, since 2012, graduates only repay 9% of what they earn over £21,000. The government had said this threshold was due to rise each year from April 2017 in line with average earnings. Yet the Government has now decided to freeze it for at least ve years, meaning many low- and middle-earning graduates will pay thousands more back than they thought they would when they signed up. After all, if we go back to thinking of it like a tax, if you were to pay 9% of everything earned above £22,000, but now repay everything above £21,000, that’s a hike. It’s received little publicity though, as it doesn’t immediately seem such a big problem. Here I need to declare an interest: I was head of the Independent Taskforce on Student Finance Information in 2012 when the system changed. The Government repeatedly told me the threshold would rise, and I, of course, told people, and used it in all my cost calculations. Well I refuse to mis-sell these loans in hindsight. So I am actively campaigning on it – I’ve written an open letter to the Prime Minister and have personally hired lawyers to see if it can be challenged (read it at

The big problem, even more important than the additional cost, is the message this sends. The Government is not just freezing it going forward, it’s freezing it for everyone who signed up since 2012 – effectively changing the contract after people have signed up.

The regulator would not allow any commercial lender to change its terms this way. This could destroy any trust current and future generations can have in the student nance system, and perhaps, even more widely, in the political system as a whole.

I said above that the impact of replacing grants with loans isn’t actually as bad as many think under the current terms. Yet the real concern is, as the Government has shown it’s willing to change loan terms even after you’ve got them, who knows what may happen in the future.