The academic year beginning this autumn will see a new regime for student finance introduced in England.
Tuition fees
The biggest change, which only affects students starting their courses this autumn, is the increase in the tuition fee cap. For 2011/12 the ceiling was £3,375, but for 2012/13 it will rise to £9,000. When the proposed increase was first announced, the expectation was that few universities would charge the full £9,000. In practice, it now looks as if most courses will carry the maximum fee.
As is the case today, the fee does not have to be paid up front, but can instead be covered by a tuition fee loan. Theoretically, a wealthy parent or student could pay the fee rather than take the loan and some universities are even offering discounts for a year’s fees paid in advance but; in practice, taking the loan will often be the best option – even if the cash is available.
Maintenance
The financial screws are also being tightened in the area of maintenance provision. As last year, if the student’s family income is not more than £25,000, a full grant (up to £3,250 in 2012/13) is payable. However, above that level the grant is scaled back and by £42,600 of income it will have disappeared. The corresponding figure for 2011/12 was £50,000.
Maintenance loans (reduced by 50% of any maintenance grant) are also available. 65% such a loan is available regardless and the remaining 35% (28% in 2011/12) is means-tested. The 2012/13 means test assumes a ‘parental contribution’ of 20% of all ‘residual income’ above £42,875 in 2011/12. Residual income is, broadly speaking, gross income less pension contributions and allowances for other dependent children. In 2011/12 the same parental contribution percentage applied, but the starting point was £50,778 of residual income.
Loan repayment
The existing scheme generally charges no interest on student loans, but simply revalues them in line with inflation. Loans have to be repaid at the rate of 9% of gross income over £15,000 in 2011/12 (for a student graduating in 2011/12) and over £15,795 in 2012/13 for such a student.
For 2012/13 students, repayments (again at a rate of 9%) apply to income above £21,000. The rate of interest charged is inflation plus 3% during the period of study and once income exceeds £41,000 a year. If income is £21,000 or less, then only the inflation rate is charged, while between £21,000 and £41,000 a sliding scale applies.
Loans are written off after 30 years from the date repayment was due to start, on death or on permanent disablement.
What next?
A student starting university this autumn could well graduate with a debt of £50,000 in summer 2015. The maths suggest that many will eventually see part of their debt written off, which is the reason why paying up-front fees looks unwise.
The world is changing if you want to plan for your children’s (or grandchildren’s) university costs. The loans are potentially much larger and the “interest” is no longer as low. Curiously, the result is that there is now a greater incentive to cover the repayments as they fall due rather than clear the debt, or avoid creating it in the first place.
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