Calculated decisions

How much? When? The fee loan repayment system needs to be spelled out to would-be students, says Martin Lewis

November 10, 2011

We all want to encourage bright students to apply to university. But next year's huge tuition fee increase offends some university staff's personal politics and leaves others worried about encouraging prospective students into a perceived large debt. This produces an ethical dilemma. Championing access to university involves explaining the fees in a way that desensitises potential students to the politics behind them.

It's a situation I've faced. Earlier this year I berated more than 100 MPs that "for 20 years, we've educated our youth into debt when they go to university, but never about debt; this must change before we treble fees". Soon afterwards, I was asked to head the Independent Taskforce on Student Finance Information, working with Universities UK, GuildHE, the Universities and Colleges Admissions Service, the National Association of Student Money Advisers, the Higher Education Liaison Officers Association, the National Union of Students and others. Although I am no fan of the changes, I agreed.

Battling the entrenched myths and misunderstandings will be an uphill task. Worryingly, the political fallout from fighting the changes may end up more damaging to prospective students' aspirations than the new fees themselves. Take the media's "£50,000 debts" headlines. Although correct, they should come with an explanation that this figure bears little resemblance to the actual cost to graduates. That depends on their earnings: many will repay a fraction of this, although higher earners will repay more (I've heard the phrase "no-win-no-fee").

It is no surprise that university applications are down 9 per cent. But what's worse is that many put off by the fees will be the more debt averse from non-traditional university backgrounds - a real threat to social mobility.

I'm sure academics receive many questions about the system; so, love it or loathe it, political views must be separated from the impact on students' pockets. Prospective students need to understand the costs before they can decide whether university is worth it.

The most important fact is that neither students nor parents need cash to go to university. First-time undergraduate fees are automatically paid by a loan from the Student Loans Company. There are loans for living costs too, and students from families with an annual income below £42,600 get grants. Loans need repaying only after graduation at 9 per cent of everything earned above £21,000 (this rises with average earnings from 2017). This means monthly repayments are the same for £6,000 or £9,000 courses. After 30 years, the debt is wiped, regardless of what's been repaid, so those who never earn over the threshold never repay. Repayments are collected via the payroll, just like tax, so graduates never see the money and there are no debt collectors.

As many will ask "how will we live with these debts?", it's worth comparing the future finances of 2012 starters with today's graduates. The big surprise is that as the repayment threshold is £21,000 (currently it is £15,000), future graduates will repay less each month - most will repay £540 a year less. And the question asked most often by parents is about the impact on students' future ability to get a mortgage. But in fact, with higher disposable income in the early years compared with today's graduates, the new system is likely to be a mild improvement for deposit building and earning multiples.

However, under the new scheme, less is repaid each month, the original debt is much bigger and the interest is higher (as much as inflation plus 3 per cent), so it'll take much longer to repay the loan and, depending on earnings, may cost far more in total. According to, many on £25,000 starting salaries will be repaying for the whole of the 30 years - most of their working life. The one weird silver lining is that many won't repay in full on a £6,000 course (plus living loans), so taking a £9,000 course won't cost them any more.

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