The UK education system is one of the best globally in terms of quality and standards. According to the latest QS World University Rankings, 4 out of the top 10 universities are based in the UK.
Student loans are the primary means by which students access higher education in the UK. Each year, more than £17 billion is loaned to students to help facilitate their education. As of March 2020, students owed a total of £140 billion in loans which are forecasted to grow to about £560 billion by 2050.
Types of Student Loans
There are two main types of student loans that the UK government advances: Tuition fee and maintenance loans. Students who are full time and study in a publicly funded university can qualify for a tuition fee loan of up to £9,250 per year. Maintenance loans are to help you cater to living expenses. The maximum you can get is £10,702 if you are in London and £8,200 if you are living outside London.
With student annual living costs in places like London exceeding £13,500 and over £12,000 for those living outside London, government-funded loans may not be enough. Therefore, students may rack up additional debt from private lenders to sustain their lifestyles.
The Best Options for Student Loans
Since it is a loan, the student is expected to repay the amount advanced upon finishing school, getting a job, and earning a certain level of income. There are several loan options available to help you finance your UK education. Here is a quick overview.
- Government Student Loans: This is the first port of call for students looking for education financing. The loans are advanced by the Student Loans Company (SLC), a UK public body owned and funded by the UK government.
- 0% Student Overdraft: If you have a student bank account, you can apply for a 0% overdraft facility. The overdraft has a maximum limit which you should not exceed else you may pay interest on it.
- Student credit cards: Getting a student credit card can help you bridge the last couple of weeks before your student loan instalment gets credited. If you cannot get a credit card because of a poor credit score, the next best option is loans for bad credit no guarantor facilities. These are quick and easy to apply and you can get approved for amounts of up to £25,000 within 24 hours.
- Credit Union Loans: These are loans provided by not-for-profit organisations set up by the community to specifically provide financing to those in need including students. Compared to private loans, their interest rates are much lower. Two key information sources for UK credit unions are ACE Credit Union Services and the Association of British Credit Unions (ABCUL).
- Private Lenders: If you’ve explored all other financing options and still find it hard to get approved or the amounts loaned are not enough, you can check out private lenders like Future Finance. However, be prepared to pay interests at annual percentage rates of up to 19%.
Comparison Tips to Help You Get the Best Student Financing
As you prepare to get a student loan, you need to do due diligence yourself instead of waiting for the school to decide the size of the loan you can afford. Here are some tips to start you off.
The Size of Loan Available
Student loan providers have different policies when it comes to loan sizes. Some cap their loans and others who don’t. Finding out the maximum you can borrow is important.
Experts recommend that you do not borrow more than what you project to earn in your first year after finishing college. There are private lenders out there who can lend you up to £40,000. Government loans are up to £9,250 for tuition and £9,203 for maintenance.
The Type of Loan
As mentioned above, you can qualify for a tuition loan or a maintenance loan. Therefore, when applying for a loan you need to be clear on the type of loan you need. It is important to note that tuition loans are normally paid straight into the school’s account while maintenance loans are disbursed into the student’s account.
The Cost of the Loan
Find out what the true cost of the loan is. Typically, this includes the interest rate component, third party costs and bank fees. You may also be charged origination fees. Compare the loan cost across the various lenders before opting for a given lender.
Know your Grace Period
What length of time do you have before you start repaying the loan? The nature of the student loan market requires that you get a longer repayment period. Some providers give you a grace period covering the entire duration of your studies. Even after graduating, you can be given about six months to settle down and look for a job before you begin repaying.
For government loans, you are required to start repaying on the April after you leave your course.
Choose the Right Repayment Option
UK students have up to 3 repayment plans for government student loans-Plan 1, Plan 2, and Postgraduate loan.
- Plan 1: Under this plan, you are required to repay your loan when your income is above £372 a week.
- Plan 2: You make payments when your income is £511 and above per week
- Postgraduate loan plan: Students who take loans for Master and Doctoral programmes are supposed to repay when their income is £404 a week.
Besides the government loans, students who take on private loans may be exposed to different repayment schedules. Some private lenders require minimum monthly repayments of say £5 during the course term and may extend the reduced repayments up to 3 months after course completion and graduation.
Other than the flexible repayment options and grace period, you need to look at how long the loan terms are. For government-funded student loans in the UK, you have up to 30 years to repay your loan after which the remaining amount is written off.
However, for private lenders, the duration differs with some offering up to 7-10 years to clear your loan. Others may have shorter terms that are not extendable. However, you need to remember that the longer the repayment period, the higher the interest payable.
Early Repayments Arrangements
It is always recommended that you start repaying your loan early. This will help you lower the amount of interest you will have to pay over the loan duration. Some lenders may charge early repayment fees while others may not. Find out how the different lenders structure the repayments and whether you’ll need to make a written request specifying the extra amount to be applied to your loan.
Impact on Credit history
Generally, student loans do not have a direct impact on your credit score. Since they are deductible from your future income, they won’t show up on your credit report. However, not all lenders follow this path. For instance, financing your education using student credit cards could impact your score if you overspend and delay making payments. Find out the policy of each lender regarding credit checks and scoring.
Interest Rate Structure
Loans come at different interest rate pricings depending on the type of lender. The rates are expressed as variable APR. This means the annual percentage rate charged can change over the life of the loan.
Most student loans in the UK are based on the Retail Price Index (RPI) plus a margin fixed by the lender. While the margin may remain constant, the loan interest rate may change due to a shift in the RPI. When comparing loans, look at their APR and the margin Added. Also, some loans may include a penalty APR clause. This means a missed or delayed payment could lead to a jump in the APR.
The Qualification Requirements
What do you need to provide in terms of documentation or the conditions to fulfil as part of the eligibility criteria for you to be approved? Some lenders require that you should be 18 years and above, enrolled at an eligible UK university, and be a resident in the UK. Others may advance loans only to UK and EU students while some extend to international students.
For instance, students taking maintenance loans during COVID-19 may be required to specify how the pandemic has impacted their parents, guardians, and partners incomes.
Therefore, when thinking about getting a student loan, you need to carefully look through the options available. Start from the government’s student loans and head out to not-for-profit lenders before exploring for-profit private lenders. Always look at the cost of the loan, the interest rate charged and the loan structure as well as loan term and repayment plans.