The amount that students of the future will have to pay in tuition fees in England is changing. The way they are paid for is also changing with an extension and revision of the student loan system.
Current Tuition Fees
Currently tuition fees are £3,290 a year for all university students, whichever university they attend and whichever course they take. This is going up to £3,375 for students starting in 2011. To pay for this grants are available, depending on a families earnings. For families who earn under £25,000 a year a grant of £2,906 is available, meaning only having to pay £384 a year in tuition fees after this. The available grant is reduced with increasing family earnings. Those with an annual income of £50,020 aren’t entitled to a grant. After the student grant is taken into consideration it is often parents who pay the tuition fees on behalf of their children.
How Does the Student Loan Work Now?
All students are entitled to a student loan to pay for their living costs through university. The amount that can be borrowed depends on each student’s personal situation. For those living in their family home (e.g. with their parents) a maximum of £3,838 a year is available with £4,950 available for those living away from home. The loan is increased for those studying in London. 72% of the above maximum amounts are available to all students, with the remaining 28% depending on family incomes.
The student loan does not have to be paid back until former students are earning above £15,000 a year. Once earning this amount repayments are automatically taken out of their salary at 9% of their earning above this amount. So those earning £16,000 will therefore pay 9% of £1,000 (£90) and those earning £30,000 will pay 9% of £15,000 (£1,350). This is then paid until the loan is fully paid off. More than this can be paid if former students wish to pay the loan off quicker.
Tuition Fees from 2012
Fees are going to be significant rising. Students beginning university from 2012 could pay up to £9,000 a year, with individual universities able to decide how much they will charge. Many have chosen to charge £9,000 for most, or all, of their courses.
How will this Work?
Students, and their parents, will not be able to pay upfront, something they currently are able to do. Students must take out a student loan to pay for their tuition fees, and can take more for living costs above this if required. There has been much controversy and debate over this. Even if the loan is only required for the tuition fess this could add up to £27,000 over three years.
It is not quite as bad as much of the media has made out though. As repayment is based on later earning, former students will not have to pay it back unless they earn a certain amount. If it is not paid back after 30 years the loan will be cancelled.
Although the amount of the loan students will require will be higher than it currently is, the good news is that the threshold is being increased to £21,000. So for someone earning £30,000 they will pay 9% of £9,000 (£810) rather than 9% of £15,000. This means that anyone paying off a student loan will be paying less a month than they would under the current system. Former students will be saving £540 a year. The downside is that they will be paying for longer.
Will University be Worth the Costs?
Whether university will be worth it in the long run ultimately depends on future earnings, something that is difficult to predict. Someone earning £30,000 and paying off their loan will be better off than someone earning £25,000 without a degree and without the loan. So it depends on the likely salary increase with a degree as opposed to not having one. If a prospective student is looking for employment in a sector where a degree is required or likely to lead to a higher salary, then it is likely to be worth the costs.
Should Parents Save for their Child’s University?
As mentioned above, tuition fees will not be able to be paid up front. Some parents have complained that they will suddenly need to find £9,000 a year, but this is untrue due to the loan system (with favourable conditions compared with other loans).
This doesn’t mean that savings on behalf of children isn’t a good idea. It is not just tuition fees that students need to pay, but living cost. And considering they may not be working, or be working part-time at best, this can be a burden. This could make the new Junior ISA scheme attractive to parents. The Junior ISA will allow for tax free savings, where parents will be able to pay up to £3,600 a year into a Junior ISA account on behalf of their children. This plus the accumulated interest will then be available to children once the turn eighteen, the age when many begin university.
Andrew Marshall (c)
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