Maintenance loans are one type of student loan provided by the government to help support students while they study for an undergraduate degree in the UK. With ever-increasing university tuition fees and living costs, maintenance loans play a key role in helping students finance their education without having to rely solely on family support or part-time jobs.
How Do Maintenance Loans Work?
Maintenance loans are non-repayable loans provided by the Student Loans Company (SLC) on behalf of the UK government. The key things to understand about how maintenance loans work are:
- Eligibility: To qualify for a maintenance loan, you must be studying for your first undergraduate degree at a university in the UK. You need to be a UK or EU national, or have settled status.
- Maximum amounts: The maximum yearly maintenance loan amounts vary depending on your household income, location of study, and whether you are studying in London or elsewhere. For the current academic year 2022/23, the maximum for those studying outside of London ranges from £7,702-£9,706.
- Payments: Maintenance loans are paid in three installments over the academic year, typically in November, February, and April. The loan is paid directly to your student bank account.
- Interest: Interest is charged on the loan from the day you get the first payment until it is paid back in full. The interest rate is based on inflation (as measured by RPI) plus up to 3%.
- Repayments: You only start repaying your maintenance loan once you have graduated and your income is over the minimum repayment threshold, which is currently £27,295. Repayments are deducted automatically from your pay each month through the PAYE system, like a tax.
Loan Amounts and Means-Testing
As mentioned, the amount you can borrow through a maintenance loan is directly proportional to your household income and location. Household income refers to your parents’/guardians’ total income before tax. The lower the household income, the higher your maintenance loan will be.
Loan amounts are means-tested using the following household income bands:
- Household income £25,000 or less: You can get the maximum maintenance loan amount for your location.
- Household income £25,001-£30,000: Tapered amounts between the maximum and minimum based on exact income.
- Household income £30,001-£35,000: You’ll receive a loan between the minimum and maximum amount.
- Household income £35,001-£42,875: Minimum amounts apply.
- Household income over £42,875: You are not eligible for a maintenance loan.
The minimum and maximum annual loan amounts are set each year. For 2022/23, outside London the minimum is £3,516 and maximum £7,702 as mentioned. The SLC assesses loan amounts based on household income from the tax year two years prior.
It’s important to realize these amounts are gross and do not account for living costs such as rent, textbooks, or travel expenses on top of tuition fees. Many students need additional funding through part-time work or parental support. Maintenance loans alone are often not enough to fully finance all costs of university study.
Repayment Terms and Thresholds
After finishing your degree, you only have to repay your maintenance loan if your income is above the repayment threshold, which is currently £27,295 per year for the 2022/23 financial year. This threshold is reviewed annually based on average earnings and will likely increase each year.
If your income is below this threshold when filing your tax return, you will not make any repayments towards your loan that month. Any outstanding debt is also cleared 30 years after you first entered repayment, regardless of whether it has been paid off in full or not. This 30-year write-off period is a major factor that makes maintenance loans more affordable than traditional loans.
During the repayment period, your monthly repayments are automatically deducted through the PAYE (Pay As You Earn) tax system, much like income tax and National Insurance contributions. The percentage you repay each month is based on your income:
- Income between £27,296-£49,130 = 9% of income over £27,295 threshold
- Income between £49,131-£56,565 = 9% of income between £49,131-£56,565 and 12% on income above £56,565
- Income above £56,565 = 12% of income over £56,565
So, in summary, the key aspects of maintenance loan repayment terms are the income thresholds, 30-year write-off period, and automatic payroll deductions each month based on your pay level through PAYE. With affordable repayment terms, maintenance loans play an important role in widening access to higher education in the UK.
Interest Rates and Inflation Linking
To understand the total cost of maintenance loans fully, it’s important to factor in interest rates and inflation linking. Interest is charged on maintenance loans from the day you receive your first payment, until the loan is paid back in full or written off after the 30-year period.
Current interest rates are the Retail Prices Index (RPI) measure of inflation, plus up to 3%. For example, in 2022/23, the interest rate is RPI (11.8%) + 3%, for a total of 14.8%. Interest rates can rise and fall each year, depending on inflation levels. Having the interest linked to inflation means the maintenance loan generally won’t get cheaper or more expensive in real terms over time.
All outstanding loan amounts are also increased each year in line with average earnings to keep up with average salary increases. This impacts how much of your payment goes towards interest versus the original loan amount. For most students, the total amount paid back over the 30-year period will normally be more than the initial loan due to accruing interest over time.
Knowing the ins and outs of interest rates and inflation linking gives borrowers a realistic picture of the total costs involved, even if monthly repayments remain affordable and the debt clears after 30 years if not fully repaid earlier. Accurate budgeting includes factoring in compound interest charges accumulating over an extended period.
Repayment Calculator and Resources
To help students and graduates better understand maintenance loan repayment amounts, the SLC provides an online Loans Repayment Calculator. This tool allows you to estimate monthly and total repayments over the loan term based on your current and projected future salary.
Input your current income amount, estimated income increase each year, and interest rates to generate personalized loan repayment estimates. You can play around with different salary scenarios to see how it impacts your monthly deductions and projected payoff date. There is also an option to download a loan statement showing full repayment details.
The SLC website itself contains extensive information on all aspects of student loans, from eligibility to repayment terms. Make use of the calculator and check the site regularly, especially as your personal circumstances change over time. Some graduates may also benefit from a Professional Development Loan to upskill and increase income potential faster to repay loans earlier.
Frequently Asked Questions
Here are some of the most common questions asked about UK student maintenance loans:
1. Will my maintenance loan cover all my living costs?
No, the maximum loan is typically still not enough on its own to cover tuition, books, rent, and other living expenses. Students should budget for additional sources of income through work, grants, or parental support.
2. Is there interest on my loan while studying?
No, interest only accrues on your maintenance loan from the first payment date after finishing or leaving your course until the loan is repaid in full.
3. Can I get extra financial help if my costs are higher?
Possibly – speak to your university’s financial aid office about bursaries, scholarships, and other funding sources you may qualify for based on your financial situation.
4. How do I repay my loan if I go back to the university for another degree?
Repayments are paused while you’re enrolled as a student. It’s important to notify the SLC if returning to study. Your outstanding balance will remain, with interest accruing, and will be repaid later on.
5. What happens if I can’t repay within 30 years?
Your maintenance loan debt is written off automatically after 30 years. However any interest still owing would need to be repaid. It’s best to maximize your income to pay off as much as possible within 30 years to save on interest costs.