Tuition fees in most of the UK will increase from a max of £3,375 in 2011/12 up to £9,000 from 2012/13. Education is a human right. Higher education though needs to come with a warning: A university degree may significantly affect your financial well-being!
Most students will have to take a student loan in order to finance their studies.
There are some positives about it:
- You don’t have to pay anything upfront. You will start repaying the loan from April after graduation at the earliest.
- Your payments will be fixed at 9% of anything you earn above £21K per year e.g. if your annual pre-tax salary is £25k, then you will have to pay £360 per year (9% *(£25K-£21K)). If your salary increases to £50k, then your repayment will be £2,610 per year.
- Given that the threshold will be increased to £21k from 2012 from £15k (current system), repayments for students who take a loan with the new system will be £540 less per year than now (9% *(£21K-£15k)).
- If for any reason during your career your annual income drops below the £21K threshold, you don’t have to make the payments for this period.
- The debt of your loan is written off after 30 years, even if you haven’t managed to pay it all back.
However, you need to be aware of the following:
- Due to the increase of tuition fees from 2012, the actual amount of the loan will be much larger.
- You’ll be charged interest on your loan from the time you get your first payment until you pay your loan back in full (if you don’t manage to repay it after 30 years, it will be written off). See full details for interest rates: http://www.direct.gov.uk/en/EducationAndLearning/UniversityAndHigherEducation/StudentFinance/DG_10034866
- Given that the amount you borrow is much more, the interest is higher and your monthly repayments are less (due to the £21K threshold), it will take you much longer to repay the loan.
It is yet unclear whether they will be penalties for early repayment. Regarding your ability to take a mortgage, you will have more disposable income since repayments will be £540 less per year. On the other hand, since the debt will last for longer, you will have less disposable income later in your career.
Since higher education will come at a significant price from now on, it becomes even more important that you choose a subject that is right for you and that will lead you to a career you love. You really don’t want to end up with a big loan and a job that you don’t enjoy. You want to be able to live your life to the fullest.
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