Students: don’t fear the debt

With A-level results now out, thousands of students know which university they're heading for when term begins next month. Many will also be concerned about the cost of a university education, with tuition fees of up to £9,000 a year.

For most students, paying those fees will mean turning to the state-owned Student Loans Company for financial support. It will pay fees direct to their course providers, while also offering additional loans to help with living expenses. How much students can borrow depends on their family income, but many can expect to leave university after three years owing £50,000.

However, if those figures sound intimidating, it's important to stress that what you owe isn't necessarily what you'll have to pay back. Students don't repay a penny until they're earning at least £21,000 a year, and even then repayments are limited. Since any outstanding student debt is wiped out after 30 years, many students will end up paying back much less than they borrow, even though student loans charge interest at higher rates than they used to.

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While you're studying, you're charged the retail price index (RPI) rate of inflation plus three percentage points. After graduation, the rate depends on your earnings. Those earning less than £21,000 pay interest at the prevailing RPI rate, and interest rises with earnings up to £41,000, to a maximum of RPI plus three percentage points.

Borrowers are eligible to start repaying their loans in the April following graduation, but only if they're earning more than £21,000 a year. Above this level, they pay 9% to the Student Loans Company. Someone earning £22,000 a year, for example, would make repayments of £90 over the following 12 months.

These rules mean many graduates will pay nothing in the years after leaving university, and large numbers of those who do earn enough to trigger repayments will not earn enough in their subsequent careers to repay their loans in full before the debt is cancelled automatically after 30 years. For many people, the total amount of student debt they have will prove purely theoretical so much so that even those families able to pay tuition fees upfront should think twice about doing so.