Let’s talk about student loans

This article will focus on the UK outlook and higher education costs, however a number of points raised will be relevant to other countries.

We are in an interesting situation where following the cancellation of in-person lessons due to the global Covid-19 pandemic not only the classrooms but also student accommodation has emptied out. Despite the mode of learning moving to online, universities are currently reluctant to provide fees refunds for both tuition and term-time accommodation. While this problem mainly impacts existing students, any incoming students should consider their next steps in face of learnings from this situation.

I am writing the rest of this article on assumption that you are in fact choosing to attend university.

Is online learning worth the cost?

You will need to judge this one for yourself. From personal perspective, if I paid £9,250 to join a cruise with fellow future leaders’ where I was to learn and build meaningful network of contacts, I would not be satisfied with a livestream of that party. I honestly think that there is a lot more to university than just the class attendance and therefore this for me raises an important question: if there is a risk of university not returning to in-class learning in October, is it worth starting this year?

The next question for every student choosing to indeed take a place up is whether there is enough value in the online class experience (for the time being, chances are in-class learning will resume by the time we see the lights of 2021) to warrant the tuition fee. Again, this will be a highly individual decision.

Options

Incoming university students have two clear options – take up their place this Autumn in hope that Covid-19 will be less of a problem by then or defer their studies for a term or two (subject to agreement with the university) and do something else in the meantime.

I am a big advocate for a working gap year for any young person. However, Covid-19 again has a negative impact here because there are less jobs and internships around right now. While there is a good chance that travel restrictions will be lifted by the end of the summer for most of the world, there is always a risk that localised lockdowns will become a thing, on top of reduced availability of travel-and-work jobs since most of these are in the broad category of hospitality and customer services.

Just as in-person attendance stands under a question mark, so do other traditional opportunities making this decision highly personal to your own desires and circumstances.

Taking out and paying back a loan

Assuming that you opt into taking your place up, you can fund it through bursaries, personal assets or loans. The last one is the most common one.

The student loans market in the UK for undergraduate and postgraduate studies is fairly simple. If you need to take out a loan as a non-international student, you’ll most likely opt for a loan from Student Loans Company – either you’ll end up with tuition only or tuition and maintenance loan.

There are two types of loan plan: Plan 1 for people who took out their loans between 1998 and 2012 and Plan 2 for students taking loans out after 2012.

At present, the Plan 2 interest rate is at 5,4% and is based on 2 figures – retail price index (RPI, currently at 2.4%) and additional 3% on top of that. RPI is variable and while it is currently at 2.4%, it changes year on year. The loan repayments are ‘on hold’ until you graduate for both undergraduate and postgraduate loans, but the interest will keep accruing on the total amount. The repayments are then income assessed and look like this:

  • 9% of the amount you earn over the threshold for Plan 1 and 2
  • 6% of the amount you earn over the threshold for the Postgraduate Loan

If you are incoming student, your loan will fall into ‘Plan 2’ category. Income threshold for Plan 2 income-based repayments commencement currently stands at £26,572 per annum pre tax. This means that any amount you make above this threshold will be reduced by 9% which will be put towards your loan repayment.

Exact figures and representative examples are available on the Government website for the topic.

To me it is only obvious that you would invest all this money to come out of school able to make more than the threshold, preferably significantly more. However, if you find yourself in a situation where you are making less than the threshold for the next 30 years, Plan 2 loan will be written off. The exact details of the when the loan can be written off are again available on the Government website related to this topic. There are a couple of exceptions to this – in case a person dies, the loan is not inheritable. If the loan holder becomes incapacitated, the loan can also be written off provided that specific terms are met. There currently isn’t a provision for key workers to have their loans ‘forgiven’ in the UK. However, for certain professions generous bursaries and scholarships are available, which negate the need for one.

Dishearteningly, government expects only 30% of students to repay their loans in full – assuming that you’re not all going to die within the next 30 years, this does not bode well for your future income. Please consider this more seriously than I did when I applied for a place at University.

How to manage university costs

Whether you chose to study full time or part time, this year or next, education is expensive. While only few years ago the cost saving on opting to study part time was considerable, in recent years the tuition per module for part- and full time 30-credit modules has been evened out. There are however other options, aside from working and cashflowing the cost, which can help in managing the expense.

Consider studying in another country

While UK charges £9,250 per year, other countries in Europe still offer competitive prices for foreign students. Although with Brexit the benefit of the cost of tuition being the same as for locals (i.e. free in majority of the EU) will be lost by the end of this year, it’s not all doom and gloom. Universities in China, including courses taught in English at some of the best universities in the world, offer tuition starting from just over £2,000 per year. Canada is also cheaper with the higher costs sitting at around £8,000 for international students. And although the EU universities will start charging UK students the international rates, their tuition on average will still be more affordable than that of UK. You might of course have the concern with living costs – while you would, as a student, need to foot the bills in the UK, the lovely news is that UK is one of the more expensive countries in the world so going elsewhere might offer a cost saving in that department too.

Chose a profession which offers a generous bursary or scholarship

This is applicable in particular to NHS workers. Are you up for becoming a medical professional? The good news is that the British Government will literally pay for your efforts. Engineering degree usually also comes with options for generous bursaries.

However, if your particular career choice is not one currently promoted by the Government through a financial offer, both University and private scholarships are also common and you should not look past them. Majority of universities offers merit and means based scholarships. Additionally there are over 1000 private scholarships funded by individuals and charitable organisations available, which cover almost any topic.

Find an employer who will help with your costs

This approach is a challenge BUT not an impossible one and it’s called Sponsored Degree Programme. Organisations small and large, private and government-related are willing to support employees who are studying not just by offers of flexible hours but also by chipping in or fully covering the tuition costs. The challenge here is getting your foot in the door. While in the financial industry this option is mainly available to Masters and PHD students already having a relationship with the employer, for others one way into it for undergraduates is an internship done as part of a sandwich degree or choosing employer specifically offering this benefit if you study a given subject. To give a stark example, KFC is willing to help employees with tuition costs if they are studying Business Management. Rolls-Royce is another example. Looking from an angle of somebody employed in the broad tech & creative industry, I will also say that pretty much every company I have ever worked for (including an estate agent) was able to offer some level of support with schooling.

Although this article is in no way exhaustive, I hope it offers some useful resources to incoming students. Choosing to study at university is a significant life decision which has a long-reaching financial consequences – please do not take this decision lightly. It truly makes me sad to see the direction the higher education is going in in the UK – until 1998 the tuition was not a thing. In 2008, when I took my first student loan, the interest was at 0.5%. It grew to 1.5% by the time I graduated in 2011, but my tuition was only at £3,250 per year. Only 9 years later the tuition has nearly tripled in cost and the interest exceeded that rate. The equal opportunities to access higher education are still a pipe dream. All I can say to this new generation of students is – be wise in your choices. And yes, use your voting power of you want things to change for the better.

Good luck!

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