The terrifying truth parents need to know about student loans

Picture of a knife stabbing towards a polar bear money box for my post about what parents need to know about student loans

Stabbed in the savings

Many parents worry that their children will leave university saddled with enormous student loans.

The terrifying truth?

Student loans aren’t big enough.

With horrendous headlines about students graduating with average debts of more than £50,000, that might seem ridiculous.

But the reality is:

  • Maintenance loan limits are too low, so students can’t borrow enough to cover their living costs
  • Many students can borrow even less, because parents earning more than £25,000 a year are expected to make up the difference.

So as a parent, stop worrying about how your offspring will repay loans in the future. The good news is that student loan repayments work like a tax, so repayments are limited to a percentage of income and only start when your child is earning above a certain amount.

Instead, start worrying about how on earth you’ll magic up hundreds of pounds a month you’re expected to contribute while your child is still studying. More than one child? You’re looking at even bigger bills.

What are student loans?

There are two types of official student loans to help towards further education costs:

  • Tuition fee loans, which cover (you’ve guessed it) tuition fees for uni courses
  • Maintenance loans for living costs like rent, heating and eating.

Now the student loan system is hideously tangled, and details depend on whether you live and study in England, Scotland, Wales or Northern Ireland. I’m going to talk about the English situation, because hey, that’s where I live.

Tuition fee loans are pretty simple. A full time student starting in September can borrow up to £9,250 a year as a tuition fee loan, and that money goes straight to their course to cover fees. Fine.

But maintenance loans are where it wallops many parents in the wallet.

What’s the maximum maintenance loan?

The maximum amount students can borrow for living costs depends whether they live at home while studying, or live away in London, elsewhere, or abroad. (Told you it was complicated)

So the limits for students starting a full-time course for the first time last September, for the 2018 to 2019 academic year are:

Living at home: up to £7,324

Living away from home, outside London: up to £8,700

Living away from home, in London: up to £11,354

Year studying abroad: up to £9,963

Let’s take a student who heads off to uni outside London. The maximum they can borrow towards living costs is £8,700, tops.

To put that in context, it’s only slightly more than the full new State Pension at £8,546.20 a year. We’re not talking mega bucks.

Even the maximum only works out as £725 a month, or £167 a week for everything: rent, utility bills, transport, books, clothes, toiletries and little things like food.

Picture of uncooked noodles on a plate with a knife and fork for my post about what parents need to know about student loans

Not even enough for noodles

When do students get less?

However, many students don’t get the maximum, because maintenance loans are means-tested. The amount they can borrow is limited by family income, which includes how much their parents earn.

When applying for student loans, anyone under 25 has to give details of their parents’ income, or parent and partner, if that’s who they’re living with before uni.

Earn more than £25,000 a year, which, let’s not forget, is less than national average earnings?

Your child can borrow less, and you’re expected to stump up the difference. Of course the Student Loans company doesn’t actually produce a statement saying ‘parental contribution £x’ – that would be too easy! Nor do they give students any way to enforce extra payments. No, they just cut the amount students can borrow, and let them whistle for the difference.

How much less?

The Student Loans Company starts slashing the amount a student can borrow as soon as their parents’ income tips over £25,000.

We’ll stick with the example of a student who headed away from home last September for a full time course outside London.

(For more examples, check out the handy dandy table over on Save the Student or plug your own figures into the student finance calculator on GOV.UK)

Earn say £30,000 a year, and the max your child can borrow is £8,076 not £8,700. As a parent, you’re supposed to find £634 a year out of thin air. And that’s before anything extra needed because maximum maintenance loans are too low.

You might still be a basic rate taxpayer, on £46,350 a year, and the maintenance loan drops to £6,035. That’s a difference of £2,665 from the maximum. Do you have a spare £222 every month to top up your child’s living costs?

Once household income passes £62,215 a year, that maintenance loan when living away outside London gets sliced down to the minimum: £4,054 a year. A gap of £4,646 compared to the max maintenance loan. £387 a month. Ouch.

So if you’re a family that gets hit by the high income Child Benefit tax charge (ie income over £60,000 a year) when your kids are young, you’re also likely to get hammered by minimum maintenance loans when they reach uni.

Right now, higher earners with children applying for the highest maintenance loans, when studying away from home in London, are effectively expected to contribute £17,100 towards a three-year course.

 

Picture of three peppers on empty fridge shelves for my post about what parents need to know about student loans

Little left to live on

How do loans compare to living costs?

Trouble is, even matching the full maintenance loan may not be enough.

Accommodation eats away the biggest chunk of student living costs. Obviously, rent will vary a lot depending on where your child studies, and the type of accommodation (London vs Leicester, uni halls vs private landlord, uber glam vs grotty shared slum).

Across the UK, the national average for student rent was £131 a week, according to Save the Student’s National Student Accommodation Survey 2018. Yet the average maintenance loan payment was just £139 a week – leaving £8 a week to cover all other costs. £8!!!!!

No wonder 61% of students who get a maintenance loan say it’s not enough to live on. Many added that it didn’t even cover their rent, let alone anything else. Rent is likely to be way more than the maintenance loans for children from higher earning families, with absolutely zip all left over.

No wonder Save the Student found:

  • 44% of students struggle to keep up with their rent
  • 45% said the cost of accommodation affected their mental health
  • 31% said it affected their studies too.

So many children will need extra cash on top.

What can parents do?

As a parent, I’d like my kids to go to uni without being afraid they can’t afford it.

I can try to teach them budgeting skills and encourage them to save themselves, get jobs in the holidays, manage other borrowing and apply for any grant, bursary or scholarship going.

But fundamentally, I’ll need to save now and save hard to top up their student loans, if I want them to study without starving. For parents who face forking out up to £17,000 towards limited living costs – start saving now!

 

Now – over to you. Did you have any idea how much you might be expected to pay towards your children’s uni costs? Do share in the comments, I’d love to hear.

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3 Comments

  1. Mrs LH
    12th February 2019 / 6:33 pm

    We had 2 at Uni at virtually the same time. It was a horrendous time for us financially – like having 2 more mortgages! The greedy landlords charged a fortune for basically slum living! Now they’re both paying back their loans – daughter’s is about 55k as her uni tuition was 9k/yr x 4 yrs – then interest is added. The courses weren’t value for money – even though they were ‘russell group unis’. I hear that some fiancial institutions do indeed count them as debt when applying for mortgages, etc.

    • Faith
      Author
      13th February 2019 / 10:24 am

      Your comment about having two more mortgages really struck a chord with me, as the loan system is based on such chunky payments from parents. The focus on the burden of loans on students, and how long they’ll be paying them off in future, seems to ignore the immediate expense for many parents.

  2. Mrs G
    14th February 2019 / 8:29 am

    We currently have 2 at uni (and 2 still at home) Eldest is in the final year but is likely to do a PhD next year and No 2 is in Y1 of a 7 year course….!!!!! (by which time no 3 will likely be at uni, shortly followed by No 4 if they go) Thankfully 1 + 2 are both at uni in Wales – the cost of living there is much cheaper than many other cities we looked at – although this did not influence their choices in any way – they chose the right course and uni for them. We essentially pay their rent for them and the min student loan they get covers living fees in the main (thankfully both are low maintenance, jeans & hoodies types (with jeans from H&M, so not expensive)) We send them back each semester with huge food parcels (probably about £50 – 60 worth each) and cleaning items and large packs of loo rolls 🙂 My mum also puts £50/ mth in their bank accounts. It *does* impact on our ability to do other things, for sure.