Published On: Mon, Oct 28th, 2019

Martin Lewis explains student finance & says amount borrowed is ‘mostly irrelevant’

Finance differs across the home nations and here I’ll focus on explaining the most common and costly system – English loans for English students. If you’ve an outstanding student loan, remember this system changed in 2012. If you started before that your system is different. Here’s a brief five things you need to know. For more detail (and explanations for the rest of the UK) see my student mythbuster.

The student loans price tag is up to £60,000, but that’s not what you pay

Over a typical three-year course the combined loan for fees and living costs can be up to £60,000, including tuition fees of up to £9,250. Yet don’t confuse the price with the cost – what counts is what you repay…

  • You repay nine percent of earnings over £25,725 (increasing to £26,575+/yr from April 2020) once you’ve left uni. Earn less & you don’t repay.
  • The loan is wiped after 30 years – no matter what you’ve repaid.

  • It’s repaid via the payroll. It’s taken before you get the money, and it doesn’t go on your credit file.

The amount you borrow is mostly irrelevant – it works more like a tax

What you repay depends solely on what you earn, ie, nine percent of everything earned above £25,725. For example, if you earn £26,725 (£1,000 above the threshold) you’ll repay £90/yr whether you owe £20,000 or £50,000.

The only difference what you owe makes is whether you’ll clear the borrowing within the 30yrs before it wipes. As it’s predicted 83 percent of university leavers won’t earn enough, for the majority it works like paying nine percent extra tax for 30 years. That’s doesn’t mean it’s cheap, just that it doesn’t work like a debt – so the fear of debt hanging over you doesn’t make sense.

Like tax, the ones who tend to pay more tend to earn more – so there is, financially at least, a ‘no win, no fee’ element here.

There is an official amount parents are meant to contribute, but it’s hidden

As well as tuition fee loans paid straight to the university, new students can take out a maintenance loan to cover living costs.

For most under-25s their maintenance loan is dependent on household income. From £25,000 family income upwards, the loan is reduced until for those earning around £61,000 and above, it’s roughly halved. This missing amount is the expected parental contribution, yet parents aren’t told that.

So work it out yourself. For new starters in the 2020/21 academic year, the maximum living loan will be roughly £7,750 if living at home, £9,200 away from home, and £12,000 away from home in London. Subtract the amount of the living loan you get from this to find the amount parents are expected to contribute.

But even the maximum may not be enough to live on. The biggest practical problem with student loans isn’t that they’re too big, it’s that they’re not big enough.

Interest is added to the headline rate at 5.4 percent, but many won’t pay it

The interest rate on student loans is based on inflation, and changes each September based on the Retail Prices Index measure the prior March (so for this academic year it is 2.4 percent). The rate is set as follows…

  • While studying: RPI + three percent, so this year it’s 5.4 percent.
  • From the April after leaving uni: It depends on earnings. For those earning under £25,725 it’s RPI, for those earning over £46,305 it’s RPI + three percent. It’s a sliding scale in between.

But the interest only has an impact if you’d clear what you borrowed initially in full over the 30 years. If not you won’t repay all the interest added. For a decent chunk of mid-to-lower earners you won’t pay any interest at all, as you won’t repay even your initial borrowing.

The system can and has changed

What counts is not whether it’ll be changed for future students, but whether it’ll change for you once you’ve already signed up. There’s a precedent for this (though the Government later u-turned). All I can do is explain how it works based on today’s system. 

Martin Lewis is the Founder and Chair of To join the 13 million people who get his free Money Tips weekly email, go to

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