Student loans in the United Kingdom

Student loans and grants in the United Kingdom are primarily provided by the government through the Student Loans Company (SLC), a non-departmental public body. The Student Loans Company is responsible for Student Finance England and is a delivery partner of Student Finance Wales and Student Finance NI. The Student Awards Agency for Scotland assesses applications in Scotland. Most undergraduate university students resident in the United Kingdom are eligible for student loans. In addition, some students on teacher training courses may also apply for loans.

History

Education Act 1962

In the years following World War II, most Local Education Authorities (LEAs) paid students' tuition fees and also provided a maintenance grant to help with living costs; this did not have to be repaid. The Education Act 1962 made it a legal obligation for all LEAs to give full time university students a maintenance grant.

Creation of the Student Loans Company

The logo of the Student Loans Company

The Student Loans Company (SLC) was founded for the 1990/91 academic year to provide students with additional help towards living costs in the form of low-interest loans. In its first year, the SLC gave loans to 180,200 students This represented a take up rate of 28% of eligible students, with an average loan of £390.

Introduction of tuition fees

In 1997, a report by Sir Ron Dearing recommended that students should contribute to the costs of university education. The Labour government under Tony Blair passed the Teaching and Higher Education Act 1998 which introduced tuition fees of £1,000 to start in the 1998/9 academic year. In addition, maintenance grants were replaced with repayable student loans for all but the poorest students. The total loans provided by the Student Loans Company increased from £941 million in the 1997/8 academic year, to £1.23 billion in the next year, when tuition fees took effect.

Tuition fees in Scotland and Wales

In January 2000, the Scottish government, which consisted of a coalition between Labour and the Liberal Democrats, decided to replace annual tuition fees for Scottish students studying at Scottish universities with a £2,000 charge after graduation. This charge was abolished in 2008. In a similar vein, the Welsh government gives Welsh students studying at Welsh universities a tuition fee grant, reducing the amount owed.

Higher Education Act 2004

The Higher Education Act 2004 increased tuition fees from £1,000 to a maximum of £3,000. By the 2005/6 academic year, the Student Loans Company was providing £2.79 billion in loans to 1,080,000 students.

Recent history

The Student Loans Company currently employs 1,894 people in the two Glasgow offices and at sites in Darlington and Colwyn Bay, Wales.

In late 2009, the Student Loans Company was heavily criticized by universities and students for delays in processing applications. It was further criticized in 2010, as previous issues did not seem to have been sorted out. Such issues could include the repeated loss of financial evidence, refusal to acknowledge that an applicant exists, sending schedules for entirely incorrect universities and in some cases years, and failing to keep applicants informed. The Chief Executive, on a salary in the range £390,000 - £394,999, resigned in May 2010, and the chairman, John Goodfellow, formally Chief Executive of Skipton Building Society, was required to resign, by David Willets, incomming Secretary of State for Education.

Eligibility

Students must meet two eligibility requirements: personal eligibility and course/institution eligibility. Personal eligibility principally concerns the student's residency status. To achieve course/institution eligibility, the student must be studying for an undergraduate degree at a UK degree-awarding institution or other verified higher education establishment. In addition, students on some teacher, youth and community worker courses are also eligible for Student Loans Company support.

Tuition fee loan

All full-time students are entitled to a tuition fee loan which covers the full cost of the tuition fee. For the 2009/10 academic year, universities are entitled to charge up to £3,225, except in Scotland where the students do not pay for tuition. In the 2010/2011 academic year, the tuition fee will increase to £3,290.

Maintenance loan

All eligible students are also entitled to a maintenance loan, which is designed to help pay for living costs whilst at university. All students are entitled to a set amount, with those living at home entitled to less and those living at universities in London entitled to more. For the 2009/2010 academic year, the maintenance loan was set at £2,763 for students living at home; £4,998 for students living in London; and £3,564 for students living at universities elsewhere in the UK.

Students from low-income households may apply for their loan to be increased. For the 2009/2010 academic year, students living at home were entitled to an extra £1,075 (bringing the total loan to £3,838); students living in London were entitled to an extra £1,940 (bringing the total loan to £6,928); and students living elsewhere in the UK were entitled to an extra £1,386 (bringing the total loan to £4,950). The precise threshold for qualifying as a low-income household varies depending on which country of the UK the student resides in, and is set between two bands, with very poor students receiving the full extra money and less-poor students receiving only a partial extra amount.

Maintenance grant

As well as being entitled to an increased loan, students from low-income households are also entitled to a maintenance grant, which does not have to be repaid. Like the extra maintenance loan, the precise threshold for qualifying as a low-income household varies depending on which country of the UK the student resides in, and is set between two bands, with very poor students receiving the full grant and less-poor students receiving only a partial grant. For the 2009/2010 academic year, students from England and Wales were entitled to a grant of up to £2,906; students from Scotland £2,105; and students from Northern Ireland £3,406.

Other grants

The Student Loans Company provides other grants, such as the Special Support Grant which is available for students on benefits. However, the tuition fee loan, maintenance loan and maintenance grant are by far the most common assistance that the Student Loans Company provides.

Universities themselves are legally obliged to give a non-repayable bursary to students in receipt of a full maintenance grant.

Repayment

Prior to the 1998/9 academic year, repayment was made under a 'mortgage-style' system of 60 monthly instalments which began when the student was earning over a specified threshold (£27,050 for the 2009/2010 financial year). This system was criticized because no matter what the size of the loan, it had to be repaid in 60 monthly instalments.

All loans from 1998/9 onwards are repaid under the Income-Contingent Repayment (ICR) scheme. The loans are repaid directly out of the student's wages, at a rate of 9% of the excess earnings over £15,000 in the tax year. Repayments continue until either the loan is paid off, the payments have been continuing for 25 years, or the student turns 65.

Interest rates

Year	Interest rate % pa	RPI inflation % pa (year ending the previous March)
1990/1991	9.8	9.8
1991/1992	5.8	5.8
1992/1993	3.9	3.9
1993/1994	1.2	1.2
1994/1995	2.3	2.3
1995/1996	3.5	3.5
1996/1997	2.7	2.7
1997/1998	2.6	2.6
1998/1999	3.5	3.5
1999/2000	2.1	2.1
2000/2001	2.6	2.6
2001/2002	2.3	2.3
2002/2003	1.3	1.3
2003/2004	3.1	3.1
2004/2005	2.6	2.6
2005/2006	3.2	3.2
2006/2007	2.4	2.4
2007/2008	4.8	4.8
2008/2009	3.8 (Sep–Nov) 3.0 (Dec) 2.5 (Jan) 2.0 (Feb) 1.5 (Mar–Aug)†	3.8
2009/2010	0††	-0.4
2010/2011	1.5	4.4

Loan interest rates are based on the annual RPI inflation rate in March of the previous year or the current Bank rate plus 1% pa, whichever is lower: eg in January 2012 the annual RPI inflation to March 2011 was 5.3% pa, but the current bank rate was only 0.5% pa, so the lower figure of 1.5% pa was charged as interest that month.

† On 4 December 2008 the Bank of England base rate was cut to 2% pa. As the student loan interest rate can never be more than 1% pa above the Bank of England base rate, the student loan interest rate was cut to 3% pa. The rate was cut again for the same reasons in January, February and March.

†† A clause in the Higher Education Act allows the government not to charge interest for income-contingent loans. This clause was used for the first time, thus no interest was applied rather than the negative rate that would have been set if the RPI inflation rate of -0.4% pa had been used.

Controversy

The introduction of tuition fees in 1998 was the subject of heated political opposition. The then leader of the Liberal Democrats, Charles Kennedy, described it as "one of the most pernicious political acts that has taken place" and pledged to abolish them.

Further controversy ensued when the government decided to raise tuition fees in 2004, despite the Labour party's manifesto pledge in the 2001 general election that it "will not introduce top-up fees and has legislated against them". The Higher Education Act 2004 was passed by 316 votes to 311, with 71 Labour MPs rebelling against the government. It was the tightest victory of Tony Blair's premiership until the government was defeated in November 2005 over plans to detain terror suspects for 90 days.

2009 Student Loans Company problems

In the summer and autumn of 2009, many students experienced delays in being assessed for and obtaining student loans and grants. As courses began in September or October, the Student Loans Company said that up to 116,000 students would have to begin the term without their funding in place. By 10 November 2009, there were still 70,000 applications waiting to be processed and 3 out of 4 universities were using their own emergency funds to help affected students. Chair of the student group Unions 94 Michael Payne branded the situation "inexcusable" and the Million+ group of universities said the failures were "very disappointing".

An inquiry into the problems was set up, chaired by Professor Sir Deian Hopkin. The inquiry reported on 9 December 2009. It found that the Student Loans Company processing system had faced problems with lost documents, equipment failures and difficulties with the online application system, and at peak times only 5% of phone calls were answered.

Responding to the report, the leader of the UCU lecturers' union, Sally Hunt, said it had been "a total fiasco from start to finish" with failures that "beggar belief". Liberal Democrat university spokesman Stephen Williams branded the report "truly damning, revealing a breathtaking level of incompetence within the Student Loans Company."

As a result of the report, the heads of customer services and information and communication technology at the Student Loans Company resigned, and the senior management team was restructured. However, the board of the Student Loans Company warned it could be another two years before the service was running properly.

The Student Loans Company was also forced to delay accepting applications for the 2010/11 academic year.

See also

Tuition fees in the UK

External links

• Directgov student finance section
• Student Loans company website