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.
- 1 History
- 2 Eligibility
- 3 Repayment
- 4 Controversy
- 5 See also
- 6 References
- 7 External links
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 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.
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 criticised by universities and students for delays in processing applications. It was further criticised 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 resigned in May 2010, and the chairman, John Goodfellow, formally Chief Executive of Skipton Building Society, was required to resign, by David Willets, incoming Secretary of State for Education.
Ed Lester became chief executive in May 2010.
In 2012 an investigation by Exaro news revealed that the Student Loans Company was paying Lester through a private company enabling him to reduce his tax bill by tens of thousands of pounds. The day after the story broke the Chief Secretary of the Treasury, Danny Alexander was summoned to the House of Commons for an urgent debate. He told MPs that Ed Lester would have tax and national insurance deducted at source from that point on.
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
|This article's factual accuracy may be compromised due to out-of-date information. (May 2012)|
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 were entitled to charge up to £3,225. In the 2010/2011 academic year, the tuition fee was increased to £3,290. In the 2011/12 academic year the tuition fee was raised again to £3,375. For courses starting after the 1st of September in the academic year 2012/13 the cap will be raised to £9,000 per year for full time students and £6,750 for part time students. Scottish and Welsh universities will also be enabled to raise their tuition fees, however residents of Wales and Scotland will be entitled to free tuition within their own countries.
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.
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 county 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.
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.
Prior to the 1998/9 academic year, repayment was made under a fixed-term or 'mortgage-style' system of 60 monthly instalments which began when the graduate earned over a specified threshold (£27,734 for the 2011/2012 financial year). This system was criticized because no matter what the size of the loan, it had to be repaid in 60 monthly instalments.
Loans taken out for courses that began after 1 September 1998 but before 1 September 2012 are repaid under the so-called 'Plan 1' variant of an income-contingent repayment (ICR) scheme. Repayments do not begin until the April after graduation or leaving a course. Thereafter, repayments are fixed at 9% of gross income above a threshold of £15,000 per (tax) year (for 2011/2012, equivalent to £1250 per month or £288 per week). Repayments are usually taken directly at source, via the PAYE system and so can vary monthly or weekly, depending on the yearly amount the gross earnings for that period equate to, in relation to the threshold. Repayments continue, depending on income, until either the loan is paid off, or the customer (as debtors of the SLC are termed) reaches age 65, dies, or through disability becomes permanently unfit for work, at which point the loan (plus any interest) is cancelled. For loans taken out after 1 September 2006 (but before September 2012), the loan is cancelled 25 years after the April when the loan first became eligible for repayment (in England, Wales and Northern Ireland; for Scotland it is 35 years), as opposed to at age 65 (this is potentially beneficial to young, low-earning graduates, but apparently penalises mature students). The current threshold of £15,000 has been in effect since 6 April 2005. From 6 April 2012, new regulations come into effect that will see the threshold increased in line with inflation (as determined by RPI, the Retail Price Index). The Department for Business, Innovation and Skills have confirmed that from 6 April 2012 the threshold will rise by 5.3% to £15,795.
Loans taken out for courses beginning after 1 September 2012 (which will be much larger due to the increase in tuition fees) will be repaid under a new 'Plan 2' variant of the ICR scheme. Such loans would not be due to enter repayment until at least April 2016. Under this scheme, repayments will also be calculated as 9% of gross income, but above a larger threshold of £21,000, which is also due to rise in line with RPI, from April 2017. Under Plan 2, loans are cancelled 30 years after the April in which they become eligible for repayment.
Interest rates on pre-2012 loans are designed to ensure that there is no 'real' cost of borrowing, as they are linked to inflation. For pre-1998 mortgage-style loans, the interest rate is set each September, based on the RPI the previous March (for 2011/12 this was 5.3%). For Plan 1 ICR-style loans (taken out between 1998 and 2012), the interest rate is the lower of either the Bank of England base rate plus 1%, varying throughout the year, or the RPI measure of inflation, which does not vary throughout the year as it is fixed from the value of RPI in March (for 2012/13 the Plan 1 interest rate is currently 1.5%, i.e. base rate of 0.5% + 1%).
For loans taken out after 1 September 2012, and due to enter repayment in April 2016, interest will accrue on the loan at the rate of RPI plus 3% (i.e. these loans are no longer 'free in real terms') until they become eligible for repayment (i.e. the April after graduating), at which point it is planned to apply a progressive rate of interest dependent on income. The rate will range from RPI for those earning up to £21,000 per annum, up to a maximum of RPI+3% at a salary of £41,000. If a student with a loan leaves university early the loan rate will be just the RPI until April 2016 when the above will apply.
|Academic year||Pre-1998 mortgage-style||1998–2011 ICR Plan 1||2012— ICR Plan 2|
† On 4 December 2008 the Bank of England base rate was cut to 2% pa. As the ICR Plan 1 interest rate can never be more than 1% above the Bank of England base rate, the loan interest rate was cut to 3%. The rate was cut again for the same reasons in January, February, and March 2009.
‡ 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 in 2009 when the RPI rate was below zero, in order to avoid applying a negative rate of interest. No such clause applies to the pre-1998 mortgage-style loans, and the negative rate of interest was indeed applied to those loans.
§ Although post-2012 ICR Plan 2 loans do not currently exist, this value serves as an example of the commercial-type interest rate that would apply (RPI+3%) for students with such loans in higher education (but not yet in repayment, i.e. during 2012–2016).
Repayment from overseas
Graduates who spend time overseas for more than three months are required to fill in an Overseas Income Assessment Form form, theoretically to provide the Student Loan Company with a way of fixing repayments during that time in fixed instalments over twelve months. This fixed schedule highlights another inflexibility of the overseas repayment mechanism when compared to the UK PAYE scheme. In addition, it is possible to apply for a reassessment when moving between countries, but only if moving to a country with a higher threshold.
The mechanism for repaying post 2012 loans if the customer has moved overseas is much the same as for those still in the UK: the same 9% of gross income over a specified threshold (set in GBP) applies, except that the threshold is varied by country, ostensibly to take into account differences in salaries, cost of living, etc., when compared to the UK. For example, in Poland the threshold is currently £9,000 for Plan 1 loans (cf. £15,000 in the UK), and between £12,600 and £24,600 for Plan 2 loans (cf. the lower and upper bounds of £21,000 and £41,000 for UK earners). The thresholds are reviewed at an unspecified time each year.
If a customer does not return an Overseas Income Assessment Form, a default monthly repayment amount, which also varies by country, will be applied. This figure is based on twice the country's national average income and so is potentially quite large. However, the Student Loan Company's actual record in pursuing money from students in a foreign country is extremely poor, with 45% of such loans currently in arrears of repayment or actually written off (see below). That said, it should be noted that if at any point a student returns to the United Kingdom for however brief a time, they can instantly be pressed for repayment of the full arrears if they have not kept up repayments in the interim.
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.
2011 chief executive tax avoidance issue
In January 2012, a BBC Newsnight and Exaro investigation revealed that Ed Lester, the head of the SLC, was being paid his salary via a private firm, allowing him to reduce his payment of income tax and national insurance contributions. It was subsequently announced that he would be treated as a regular employee in the future. In May 2012, Lester announced he would be leaving the Student Loan Company at the expiration of his contract in January 2013 although he insisted that the controversy had no bearing on his decision. His replacement is Mick Laverty, a former Regional Development Agency chief executive, appointed in October 2012 and incumbent from January 2013. 
Overpayment and non-repayment problems
Major problems continue to beset the repayments system, leading to many thousands of graduates overpaying on their loans. The issue is that although repayments are processed by the Student Loan Company, under a specialist department headed by Kevin O'Connor, they are actually collected by HMRC. The payments collected by HMRC are passed across annually, and only then is the amount left on the student loan calculated. If the Student Loan Company notice an overpayment, then the money should be returned with interest. However, long delays in this process have been noticed - and in addition, the Student Loan Company have on occasion neglected to inform HMRC to stop taking payments, so a further year of repayments even when the loan has been acknowledged as cleared is not unusual. In 2011/12, the money wrongly taken because of these practices amounted to £36.5 million. In 2009, a new direct debit system was introduced to try and address this problem for graduates who were estimated to have fewer than two years' repayments left to make. However, poor administration has bedevilled this system from the start, and inadequate record keeping means the Student Loan Company have great difficulty identifying how much is owed by individuals, meaning that occasionally they either miss the time when repayments should be switched to the direct debit system, or worse, send demand notices to graduates who have already paid off their loan.
The transfer of information and even money between HMRC and the Student Loan Company has also been beset with difficulties, again apparently due to poor record keeping and the decision to process all repayments at once. Some graduates have found that large sums of money have gone missing in the records. The Student Loan Company will alter their records on receipt of the relevant payslips and P60s showing the missing payments. However, that makes it necessary to check all paperwork carefully and retain records for the period in question. Graduates are advised to be very wary about the Student Loan Company, and not take their word on trust due to these problems. They should check all paperwork and ensure that the repayments are going in according to schedule, and not be afraid to complain or otherwise draw the Student Loan Company's attention to the matter should they make a mistake.
Almost as problematic is the non-collection of money due. Because loans are collected through the UK tax system, there is no efficacious system of collecting them from eligible non-UK students who have returned to their home country (mostly in the EU) and the Student Loan Company has never attempted to sue through a foreign court for the money they are owed. In January 2012, more than 45% of such loans were in arrears and apparently had been effectively written off, at a cost to the Treasury of over £20 million. In December 2013, the Public Accounts Committee described the repayments system as 'blatantly inadequate' and its chairman Margaret Hodge advised the Chief Executive that when it came to systems for ensuring repayment, 'These are very simple things you are not doing.' Only nine foreign nationals had ever been taken to court for non-payment, and just three had been convicted for non-repayment. In the same year, 92 applications for funding from abroad were found to be fraudulent, but no arrests or prosecutions had been instituted.
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