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If you or your parents have saved up for your university days you may be wondering how to pay tuition fees without student finance. The days of free or cheap tuition are long gone, with fees for UK students now hovering at £9,250. Paying fees upfront might seem like the best idea but due to the way student loan repayment works you could end up worse off.
How Many Years Does Student Finance Fund?
For new full-time students your tuition fee loan will last the full 3 years of your course. Worried that relying on student finance will leave you out of pocket? If you are studying a 4 year course or have to repeat a year this will also be covered. Note that years in industry, such as the final year of medicine are not covered by the maintenance loan. The tuition fees will still be covered however. Our table below shows current maximum loan rates and the prediction for 2020 tuition fees.
| Full time student | 2018/19 | 2019/20 |
| Full time | Up to £9,250 | Up to £9,250 |
| Private Uni/College | Up to £6,165 | Up to £6,165 |
A Common Misunderstanding of University Finance
Those rather large numbers do add up quickly over the three years. No wonder higher income families or students want to know how to pay tuition fees without student finance. It might seem counterintuitive to not pay off a loan when you have the means to do so but student finance is very different to your usual debt. When we think of money owed, what usually comes to mind is the interest rate and the potential dangers of not repaying. Whether you spend too much on a credit card, get a car on finance or have a store card, debt usually accumulates in the same way.
Every month the amount of money that you owe increases due to interest and every month you are required to make a payment of some description to bring the overall balance down. The smaller the payment you make, the longer it will take to pay back the money. Due to the compounding effect of interest, the time and amount you pay back increases exponentially with smaller payments.
Basic Debt Management 101
As a result of this, the standard advice for anyone in debt is as follows:
- Prioritise debt in order of highest interest rate not the debt amount
- Pay off a portion of the highest rate debt every month
- Only move onto the next debt when the first account is cleared
For those who need a psychological boost during their debt repayment you can use the following method. It gives positive feedback sooner but technically takes you to clear your debt.
- Prioritise debt with the least amount owed first
- Pay off and close your smallest account
- Move onto the next largest debt and repeat
The problem is these models only work when looking at standard credit agreements. An oversimplified view would be this:
- You take money under agreement from a financial institution at a particular rate of interest.
- At certain intervals or after a certain time period this interest is added to the amount owed.
- At certain intervals or after a certain time period you are expected to repay the money.
- If you do not repay the money in a timely fashion you will be penalised either with a fine or legal action which will affect your credit rating at the least.
The Student Loan Difference
There are quite a few benefits when it comes to student loans.If you are still wondering if and how to pay tuition fees without student finance the following should change your mind.
First things first, you don’t have to pay back any of the money until you are earning £25,000 a year. This means the risk of taking a student loan is very minimal. If you get fired or are otherwise unable to generate an income you will not suddenly rack up fines and ever increasing debt or indeed any legal action. The amount of debt you accrue at university though the loan will not affect your repayments either.
9% of your earnings over £25,000 go towards paying back your student loan. This is independent of the total amount owed.
This makes student loans very attractive compared to your usual commercial loans that are advertised on the high street. Not being able to pay back a substantial amount will not have a negative impact on your credit score, freeing you to prioritise other debts.
The Student Interest Rate
Long gone are the heady days of 2015 when the interest trailed at just under 1%. While current rates are higher, and substantially so if you earn above £45,000, remember our key point: the amount you pay back each month is not related to the total amount you owe. So when studying the below table keep in mind that any percentage increase will impact how long you you are paying back money. That being said there is a 30 year cut-off to take into account as well. Reach 30 years with debt still remaining and this will be cleared. Not a bad deal at all, is it?
| ACADEMIC YEAR | EARNING UNDER £25,000 | EARNING £45,000+ |
| 2015/16 | 0.9% | 3.9% |
| 2016/17 | 1.6% | 4.6% |
| 2017/18 | 3.1% | 6.1% |
| 2018/19 | 3.3% | 6.3% |
Still worried?
This is an interesting quote from the IFS:
“The Institute For Fiscal Studies estimates 83% with English student loans won’t clear the debt (including interest) within the 30 years.”
This isn’t a fact because people abscond from their responsibilities, it is because the system is designed to take money only when you can absolutely afford it. Unless you live completely without a budget you are unlikely to find repaying your student loan an issue at all.
University Loan Repayment: An Exception
There is a very handy calculator over at MoneySavingExpert that shows some niche cases where you may be better off paying the loan back sooner. The niche case is essentially this: if on graduation you immediately start in a high earning bracket (>£40,000) and continue to see your earnings increase significantly year on year then paying upfront could be the better financial decision. This is due to high earners being much more able to pay back their loan within 30 years at 9% of their annual pay. It is a big decision to take however and you must make a lot of assumptions (keeping your job and ability to work are a couple). If you have a strong feeling this is the right step for you then consult a financial adviser.
Dropping Out of Uni: Student Finance
A final point to consider but an important one. If you take a loan or pay upfront there is always the chance that you find university is not for you. Even the most determined cannot see what personal life events may arise that cause you to drop out of university either permanently or temporarily. If you are dropping out of uni student finance will view any partial terms attended as full terms. Currently each term roughly equates to £2,300. On leaving you will owe the number of terms multiplied by £2,300, plus additional interest at a rate of RPI +3%.
The great news is that paying this money back still follows the same rules as when you were a student. The student loan company will likely contact you to retrieve any unused Maintenance Loan but you will have plenty of breathing room for other repayments until the following April. Of course this will be 9% of your annual earnings assuming those are over £25,000.
Although you can’t prepare for all eventualities, making sure you have thoroughly researched your university and course is the first step in ensuring you can stick with 3 years or more of study. If you feel undecided there is always the option of doing a foundation degree, which lasts only 2 years and prepares you for the world of work. This gives you income a year early and 33% less to pay back!
Future Funding
While big institutions can seem faceless at times, if you have dropped out for health or personal reasons Student Finance are usually happy to review your case if you decide to return to university. You are not trapped with your decision either, any any further changes or repeated years are possible on top of top of the standard degree, potentially giving you a full 4 years of funding, separate from your previous degree efforts. Be aware that regardless of your reasoning, Student Finance will expect some form of supporting documentation to help them with their decision making.