I live in the UK, and attended university between 2016 and 2020. This means that for me, university was very expensive. The annual fees charged by the university are set at £9250 p/a. This of course sits on top of any living expenses, which -as I was studying in London- were quite high.
'Fortunately' UK students are not abandoned to face these charges alone. The UK government provides financial assistance that is available to all students in the form of a Student Loan. Prospective and current students can apply on an annual basis for a loan consisting of two parts: a tuition fees loan covering the £9250, and a means- and situation-testing maintenance loan typically in the region of £5000-10000pa (exact details can be found on the student finance website slc.co.uk ).
Of course, this means that over a typical 3 or 4 year course, a student can easily accumulate debt in the region of £50000-£100000. Naturally, this is a loan that charges significant interest. From the year that you graduate, the loan begins to appreciate in value. The exact rate of interest is structured as follows (as per of January 2021):
Earnings pa interest rate
£26,575 or less 2.6%
£26,575 to £47,835 2.6% plus up to 3%
£47,835 or more 5.6%
As is the nature of interest, successive years rapidly compound and the student loan balance can increase at an alarming rate. But how is it repaid? There are two main ways. By default, the student loan company will take repayments on a monthly basis equal to 9% of your earnings above £26575. As an example, a person earning £29000pa will pay 9% of (29000-26575) = £218.25pa. Additionally, individuals can also choose to make voluntary repayments of any amount. The final aspect to consider is that after 30 years, the remaining balance of the loan is written off.
This payment structure as well as the nature of loan's growth leads to some interesting questions: chiefly surrounding the super-question: 'should I even bother to pay off my loan?'. In the next post, I will outline a tool that I developed in order to help me visualise this problem and think about potential solutions.
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