The Government has now set out its plans for reforming university fees and loans. It doesn't make happy reading for students to be..
The new plans will affect students starting higher education in 2012 and mean a university education could end up costing some students over £100,000 by the time their loans are eventually repaid.
Tuition fees
At the moment students must pay up to £3,290 towards tuition fees for the current academic year. From 2012 this will rise to £6,000 a year, with the possibility of some universities charging up to £9,000. So 3 years at university could cost between £18,000 and £27,000 in tuition fees alone.
Will many universities charge above £6,000? Too soon to tell, but logic suggests that if they can while still filling places then they will. To charge above £6,000 universities will have to show they give opportunities to a wide range of students, but this is unlikely to be a string deterrent.
Rather than pay for tuition fees upfront, students can roll these into a loan that's repaid when they start working.
Living costs
Students from families where total annual income is below £25,000 will get an annual £3,250 non-repayable grant, with partial grants being given where income is up to £42,000.
Students can also take a maintenance loan of up to £5,500 a year (depending on family income) to help towards living costs. Full details of these loans have yet to be published, but they'll be added to the student's overall loan.
Student loans
Interest is charged at a rate equal to inflation (measured by the Retail Price Index - RPI) from the day the money is lent, regardless of the student's income. Once a graduate earns above £21,000 a year extra interest will progressively be added, hitting a maximum of RPI plus 3% when they earn £41,000 or more.
Loan repayments are made at 9% of income over £21,000 a year, with any remaining balance written off after 30 years.
Students who wish to repay their loan more quickly could face a penalty for doing so, as the Government is contemplating an early redemption charge, possibly 5% of the extra amount repaid. You'd expect greedy banks to do something like this, but not the Government. It should be encouraging the repayment of debt rather than penalising graduates for doing so.
How much could a university education end up costing?
The decision to go to university will become increasingly debateable for many children, as it could end up costing them a fortune.
The projections below assume average inflation (RPI) of 3%, annual salary increases of 5% and an annual maintenance loan of £5,500 for 3 years:
| Graduation Salary | £6,000 Tuition Fees | £9,000 Tuition Fees | ||
|---|---|---|---|---|
| time to repay | total cost | time to repay | total cost | |
| £20,000 | 30 years (£102,229 written off) | £62,980 | 30 years (£158,232 written off) | £62,980 |
| £25,000 | 30 years (£41,881 written off) | £92,787 | 30 years (£99,583 written off) | £92,787 |
| £30,000 | 27 years 4 mths | £99,093 | 30 years (£32,217 written off) | £122,685 |
| £35,000 | 21 years 11 mths | £78,892 | 27 years | £120,416 |
| £40,000 | 18 years 2 mths | £67,786 | 22 years 5 mths | £100,089 |
With Government finances as stretched as they are, shifting higher education costs onto a more commercial footing is probably an unfortunate price that has to be paid. But it could leave future generations of graduates saddled with a lot of debt - and that's before they buy a home and/or start a family. I'm starting to feel very fortunate that my university education (which seems a distant memory now) was free...
Read this article at http://www.candidmoney.com/articles/article170.aspx
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