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Why Have Student Loans Increased So Dramatically?

Oct 31, 2012

Student loans have been significantly raised over the past few years, with top universities now charging £9,000, and most charging at least £6,000. Just over 10 years ago students didn't pay anything at all in terms of tuition fees, but now face extensive debts once they graduate.

When included with maintenance loans, which amount to around £5,500 to £7,675 depending on where you choose to study, the cumulative debt for university can be in the tens of thousands. It’s worth, then, looking at why loans have increased, and how it affects the repayments of students, as well as some of the options available to them to reduce the burden of debt. 

Cuts and Funding


Increased tuition fees primarily developed out of funding cuts to universities, and the need to make up for deficits in terms of paying teachers. Universities depend on public funding, fees, sponsorship and grants to survive, and when one area declines, more investment is needed in others.

The increase in fees also came as part of government pushes to make higher education more open and competitive, in line with global trends. Making UK student tuition fees higher similarly has the knock on effect of narrowing the gaps between British and international students, with the latter still tending to pay a lot more for studying in the UK.

Defenders of the tuition fee rises look past declining applications since 2010 to the staggered cost of repaying loans. Raising the earnings cap before repayments begin to £21,000 to £15,000 means that students have longer to pay off their loans, and don’t feel the full impact of interest on their loans for several years unless they enter into highly paid jobs - at which point the loan becomes more manageable in relation to earnings.

Other disparities exist, however, with students in Scotland, Wales, and Northern Ireland either not paying fees for their home universities in the case of the Scottish, or having subsidized fees.

There are also a number of support schemes in place to help students from lower income backgrounds to afford the cost of study. The National Scholarship Program provides bursaries to students that can contribute towards fees and living costs.

Homes with a joint income of under £25,000 can also receive non repayable maintenance grants, while homes earning £25,000 to £42,600 are eligible for smaller amounts. Universities are similarly expected to provide hardship loans and scholarships to students with low incomes.

Repayments


In terms of when you have to make repayments on your loan as a student, the £21,000 cap means that many will not immediately start paying off their loans. Once this is activated, employers deduct 9 per cent from earnings through PAYE, while self employed workers receive automatic deductions after filling out their tax forms with HMRC.

Interest is also paid on loans at a rate of 3 per cent above inflation. If the thought of a long term set of repayments does not appeal, then there is the option of taking out a short-term loan to pay off a student loan. By taking a calculated risk on the short term interest rates on a loan providing enough of a deficit on a long term student loan repayment, this option can be a good one for those that can afford it.



Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.comWant to be heard? Leave a reader comment below.

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