£3,000 University Tuition Fees Begin
MoneyWise Autumn 2006
Although £3,000 is the maximum fee set by the government, in practice very few colleges have opted to charge anything less than this figure, such is the state of university finances.
Fortunately the fees no longer have to be paid up front. Instead students can apply for a ‘Student Loan for Fees’ to cover the costs. This means that the fees are paid direct to the college, on the student’s behalf. Once students have left university and are earning over £15,000 a year, they have to start repaying these loans.
The tuition fees loans will sit alongside the loans given for maintenance, which in 2006/07, for a student studying outside London, can be up to £4,405 a year.
Maintenance grants are available, but the Department for Education and Skills says that only about half of students will be eligible for any grant payment. They are not available where household income exceeds £37,425 a year.
The combination of loans for the new higher tuition fees and maintenance could easily mean that, at the end of a three-year course, a student will owe more than £20,000. That compares with a projected average salary for 2006 graduates of £23,000. ‘Interest’ is charged on the debt at the rate of RPI inflation (roughly 2.5% a year if the government meets its targets), while repayments are 9% of gross earnings over £15,000. A graduate with £20,000 debt will begin working life with an annual interest bill of £500, assuming 2.5% annual inflation.
This is cheap debt: interest on the same amount borrowed as a mortgage would be £1,350 a year at current standard variable rates. When deciding which debt to pay off first, clearing student debt may not be the highest priority in relation to other loans.
That is not to say that you should not plan to provide some financial assistance to your children during and after their college years. The point is that there could be better things to do than clear low-cost borrowing, for example provide help towards a deposit for their first home.
