- Repayment system has a lower interest rate but now comes with 40 years before debt wiped out, benefitting highest earning graduates
- Highest average earnings five years after graduation go to those sitting medicine and dentistry courses, with economics taking second place
- Budgeting can help your cash go further at university
Charlene Young, pensions and savings expert at AJ Bell, comments:
“Many students receiving their A-Level results today will now be thinking about next steps and whether they will be going to university in September, entering the world of work, or perhaps taking a gap year.
“For those set to go to university, budgeting might not be at the top of your list if you’re currently celebrating your A-level results, but the cost-of-living crisis has heaped extra pressure onto the financial constraints university students already face. Thinking about how you’ll make your money last will save you stress further down the line – and hopefully mean you make the most of your studies and the whole university experience.”
What is a student loan?
“A student loan has two parts – tuition fees and living costs. Interest is charged from day one at the same rate as the Retail Prices Index (RPI) measure of inflation.”
*Your family income is taken into account (including step-parents) even if your parents aren’t helping you out financially.
When is it paid back?
“This year’s university students will start to repay when they earn over £25,000 a year, or £2,083 a month. Although this threshold is currently frozen until 2027, the government could choose to increase it from then on – which is when this year’s freshers will begin to graduate from three-year courses.
“Repayment will then be at a rate of 9% on earnings above the threshold, regardless of how much you end up owing, which is why it’s often called a graduate tax. Someone earning £35,000 will pay back £75 a month from the April after they graduate, or £900 a year. If you begin your career on £50,000 then your monthly repayments will start at £187.50.
“Anything you owe after 40 years is wiped out, which is a longer wait time than older plans. Someone starting on £20,000 after university with a few pay rises through their working life could see nearly £100,000 written off after 40 years. But someone earning £40,000 straight away would likely pay off £69,679 in loan repayments after 24 years.”
How to budget for university
“Work out what your crucial expenses are, including things like rent, study materials, utilities and food that you can’t go without. It’s also worth checking whether you are covered by your parent’s home insurance for contents and possessions.
“Once you’ve totalled them all up you can deduct that amount from the sum of money you’ve got to work with, which could come from your loan, grants, employment income or gifts from family.
“For students it will often make sense to break things down term by term and then set out a weekly budget with spending limits. That allows you to keep track – if you overspend a little one week you can cut back slightly the next.
“Hopefully after doing this you should then have a clearer picture of what is left for extras such as going out, clothes and shoes, hobbies and interests (e.g. sports and societies) and hair and beauty.”
Tools to help
“There are loads of different apps and resources online, so you don’t have to build your own spreadsheet from scratch unless you really want to. Mobile apps are a great way if you’d like something to hand that you can regularly check in with. Banking apps also let you group spending into different categories or have different pots where you can put away a little amount or round up your spending each week.
“There are also some great online budget planners aimed at students too – one of the best is from Save the Student, but UCAS also has some great resources on budgeting and how to keep things realistic.”
Sticking to it
“You’ve made a budget, so the next job is keeping to it. The best way to do this is check in regularly, usually weekly, to see how you’re getting on and act if necessary. Having a realistic plan at the start means you’re less likely to overspend – another step towards helping your money last.
“Many student bank accounts will come with an overdraft, usually free up to a certain limit. Whilst it’s really tempting to think of this as part of your income, it isn’t your money and should only be called upon in emergencies if you can help it.
“The same goes for credit cards. Promotional offers might help you spread the cost of one-off items like a laptop, and give you protection on the purchase, but interest and fees can escalate very quickly.
“If you do find yourself borrowing to get through then the key thing is to make sure you have a plan to pay off the debt. That could come from a summer job, for example.”
Working whilst studying? Keep an eye on tax
“Although a temporary job might earn you less than the tax-free personal allowance of £12,570 each tax year (6 April to 5 April the next year), you might get a shock when you look at your payslip and still see income tax deducted.
“That’s because the system used to tax employees (PAYE, or pay as you earn) will assume that someone working a chunk of hours over Christmas or during other holidays will be earning that amount regularly and tax it accordingly. You should make sure you claim this back – see the government website for more details on how to claim.
“If you are earning a small amount each week throughout the year, there’s less chance you’ll be overtaxed, but it’s still worth double checking.”
