Changes are afoot in the world of student finance. For a number of years, students have been facing tuition fees that continue to rise, contributing to an increased financial cost for anyone hoping to attain a degree in the UK.
It may now seem like a distant memory, but previous generations once enjoyed free higher education. But much has changed, and students face pressures that they never used to have to deal with.
To raise awareness of the impact of debt on students, we conducted an extensive survey, reaching out to a representative group of them, to get unique insights into how they are handling their student finances, and how much they understand about debt, among some other things.
We found that only a little over half (51 per cent) of all students we polled had calculated how much it would actually cost them to complete a degree when it came to factoring in course fees and living costs altogether.
Despite this, 61.6 per cent of all students told us that financial costs were a key consideration before they started their degrees. The costs of university fees have a knock-on impact on people who might wish to study beyond university. We found that 53 per cent of all students we surveyed were deterred from considering something like a Masters degree, directly because of the cost of their university fees.
Politics drives the tuition fee discussion greatly – MPs have voted for successive increases in the cap for tuition fees, to the point where they are now over three times more expensive than they were just a decade ago.
Not only do these higher fees feed into higher financial costs for students – but they also have an impact on their mental health. Confidence in the ability to pay down debts as a student can influence how someone feels, as they embark on their educational journey and subsequently cross into the world of work.
We want to put you back in control, with insights and a better understanding of how student finances work. We will explore the industry of student finances: the rising costs, what loans are available, where tuition fees came from and whether students feel like they are getting value for money, as well as whether they feel like their degrees are a guarantee of a good job at the end of it all.
Student loans are one of the many tools students turn to, to finance their degrees. The state-owned Student Loans Company is one of the prime providers of these loans.
Students have to reach a specific level of earnings upon completing their studies, to be in a position to have to pay down their student loans. At present, those following Plan 1 must earn at least £18,330 a year to start repayments, whilst those who are on Plan 2 must earn over £25,725.
The proportion of students who rely on a student loan as a source of finance
If someone fails to earn over either of the repayment thresholds for up to thirty years, the debt is eventually written off. If someone is in a position to earn above either of the repayment thresholds however, they can expect to pay 9% of the money earned above the threshold towards repaying their loan.
When we asked students in our poll (both with and without student loans) about whether they felt like they had enough money to live on, just under half (46.2%) agreed. This suggests just over half of all students are managing on a budget that’s below what they feel like they actually need.
Student loans are an integral part of a student’s experience nowadays, and demand for them is increasing over time.
Students are expressing concern about being able to actually have the right amount of money they need to live on during their degrees.
Here are some core numbers to give you an idea of just how important student finances are for the population at large.
A vast majority of students we surveyed use student loans, indicating that demand is high. Yet when you dig deeper to explore the numbers, it’s clear that the system is unbalanced, and it doesn’t seem to be delivering an experience that students are entirely happy with.
A significant proportion of the UK population has some kind of student loan to pay off. Broken down by age, 28 per cent of people aged 18-34 have a student loan to pay back, making student finances a prominent issue for a significant segment of the population.
Given that the cost of higher education has risen, it’s important to point out who was responsible. The decision to raise the cost of higher education over time has been something successive governments have made. Let’s explore how politics has led us to where we are now.
The cost of higher education is considered high by some, but it wasn’t always the case. If you had been a full-time student a quarter of a century ago, in 1994, you would have been exempt from tuition fees altogether.
This is because universities were operating under the Education Act 1962, which not only made full-time resident students exempt from tuition fees – but they were also entitled to a means-tested maintenance grant.
For several decades, fees remained something that students didn’t concern themselves with. The debate surrounding a major change to the established order started to take shape by the late 1990s. Crossbench peer Lord Dearing published the Dearing Report in 1998, outlining the need for additional funding for universities in the coming decades.
The Labour government, under Tony Blair, considered the Report and proposed to phase in tuition fees worth £1,000 per year for full-time students, exempting those from low-income households. The £1,000 level was chosen, as it was estimated to represent a quarter of the average cost for a degree course.
The Blair government went on to scrap the maintenance grant, in favour of a system that was more dependent on students seeking out loans to finance their education. The introduction of a more loan-based system of student finance happened in a political environment where Mr Blair’s government wished to increase higher education participation rates among young people to as much as 50 per cent by the late-2000s.
Without the introduction of any kind of student loans, it is possible that higher education may have simply proved unaffordable otherwise.
At present, undergraduates have access to two types of loans, when they begin their studies at university:
A distinguishing feature between the two loans is that tuition fee loans are set by the university and apply to every student, whereas maintenance loans are means-tested and vary from student to student.
Additionally, undergraduates who face additional costs due to a disability can be eligible for a Disabled Students’ Allowance. Universities can also offer bursaries or hardship funds to assist students in their studies. Bursaries are awarded on an individual basis, and hardship funds accept applications from students who experience financial hardship, providing them with the funds they require on a non-repayable basis.
"Whilst tuition fees haven't gone up in the past few years, the impact of them almost tripling in 2012 has been well-documented. It's important to remember that what you're charged versus what you end up repaying can be quite different and the increase in fees, although something I disagree with, isn't as bad as it's portrayed to be. The effect of this is more psychological than monetary."
Jake Butler, student money expert at Save the Student, a financial advice organisation for students
The Browne Review was an independent review of university tuition fees in 2009. Published in October 2010, the Review recommended that the then-existing cap on tuition fees, which had risen to £3,290 by that time, should be removed. The Review also proposed that students should only have to pay back student loans once they had started earning at least £21,000 per year, at a rate of 9 per cent of the sum of money earned above the repayment threshold.
Much is said about the costs of student debt, but you don’t actually have to start paying it back until you start earning over £25,725 a year, for students on Plan 2 at present.
The threshold is expected to rise to £26,725 by April 2020.
Student loans, like other forms of loans, require those who seek them to repay them with some level of interest added on top. Interest is a cumulative part of your student loan, so the overall costs can increase over time, the longer the student loan exists for.
At present, interest on student loans depends on the circumstances of the payee:
Interest on your student loan after you finish your studies will be income-dependent because anyone earning up to £25,725 at present pays interest rates identical to the latest rate of RPI. However, if you find yourself now earning £25,725 to £46,305, your interest payments will be higher, meaning you pay interest at the same rate as RPI, plus up to an additional 3 per cent or so.
Higher earners, who earn over £46,305 at present also pay interest identical to RPI, plus an additional 3 per cent on top.
There are movements in British politics which support the argument for a rise in tuition fees, often arguing that UK universities require free-market reforms to ensure that they receive sufficient funding.
Is the political decision to reduce public spending really about delivering a better higher education system, or is it just a way of moving the costs of tuition fees onto students?
It serves as a convenient way of reducing public spending but has the side-effect of forcing more students into debt, as the costs of tuition fees rise. The system of student loans as it currently stands has produced an industry of its very own, with its own interests often placed above those of students, based on the moves made by successive governments in recent years.
A coalition government was formed in 2010, led by Prime Minister David Cameron, which responded to the Browne Review upon publication, proposing a rise in the tuition fee cap to £9,000 per year. In line with recommendations, the government agreed with the idea that loans should be paid back at the higher £21,000 earnings bracket.
The main three political parties have each charted their own journeys in relation to tuition fees over the years. The Conservatives, who have been in government since 2010, stress the importance of shaping higher education in a way that they consider more progressive.
Labour, serving as the official party of opposition since 2010, views the subject of higher education costs as a story about young people being unfairly priced out of a degree.
"Access to education is a right, not a privilege. The next Labour government will scrap tuition fees and bring back maintenance grants, ensuring that higher education is available to everyone, whatever their background, as part of a National Education Service for the many, not the few."
Gordon Marsden MP, Shadow Minister for Higher Education
Since 2010, the Lib Dems have transitioned from being in favour of scrapping fees to introducing higher fees in government,
before adopting a more cautious approach, suggesting a review of the higher education finance system in more recent times
Since 2010, Labour has moved to oppose tuition fees altogether, claiming they incur unnecessary debts
Since 2010, Conservative governments have allowed the fee cap to rise in line with inflation, but have raised the repayment earnings threshold
While Labour offers opposition to the current system and wishes to scrap tuition fees altogether, the Conservatives believe they are becoming more progressive, while the Liberal Democrats shoulder some of the criticism of having been partly responsible for the rise in tuition fees, proposing a review in more recent times.
"By the time the coalition ended, there were more students going to university than ever before. The gap between the percentage of students coming from affluent and from low-income backgrounds shrank to its smallest-ever level. Universities had financial stability and graduates who benefited the most financially from their degree paid their fair share of the costs. But the Lib Dems paid the price for making a pledge on tuition fees that we couldn’t meet."
Sir Vince Cable MP, former leader of the Liberal Democrats and MP for Twickenham
Opposition to tuition fees has been fairly consistent within Labour, whereas the Conservatives remain adamant that the system is progressive, having revealed plans to raise the repayment threshold. For now, we have a new Prime Minister in the form of Boris Johnson, but does this necessarily mean things are radically changing?
The UK has seen successive governments propose raising the cost of higher education, with the Parliamentary vote held by MPs back in 2010 in Westminster being an obvious line in the sand. It forced the three main parties to decide where their views really lay, owing to the unprecedented rise in the cost of higher education.
If a general election unseats the incumbent Conservative government, the future of tuition fees and with it, the overall costs of higher education, may be subject to great change.
The UK now has a party of opposition with the explicit policy of wishing to abolish tuition fees altogether, a move which would potentially rebalance the system of student finance entirely to the advantage of students.
Government statistics on enrolment into higher education are somewhat inconsistent, but generally suggest that at the latest count for the 2016-17 academic year, participation rates among people aged up to 30 years old stood at 49.8 per cent. That means a large chunk of the young adult population will have been entering into higher education, and a large proportion of them will have turned to student loans to finance their degrees.
Successive governments have ushered in a system of student finance in which the cost of higher education rises year after year now, in line with inflation, prompting more students to require student loans to finance their degrees. This is highly important, now more than ever, quite simply because more people are entering into higher education.
If incoming generations of students are increasingly unable to meet rising costs, the risk of losing financial stability could rise. But does it have to be like that? What if there is some alternative to this system altogether?
Higher education participation rate data shows a noticeable gap between men and women, of as much as 12.4 percentage points in favour of women. Greater participation among women chimes with our own recent polling data, which found that more women actually use student loans as a proportion of the total population than men.
As a result, the cost of student loans not only becomes an issue for young people in general but also disproportionately becomes an issue for young women. Combined with fears of persistent gender inequality in the workforce, this is a major concern for some.
Looking ahead, participation in higher education is expected to rise. According to projections by the International Institute for Applied Systems, an increasing number of people in the UK aged over 15 are expected to have been educated to degree level by 2050, almost double the level recorded in 2000.
While mulling over whether to pursue a degree or not, bear in mind that demand for higher education is greater than ever before, but there are a wide variety of other options available. While a lot of people pursue degrees, you need to make sure it’s the right choice for you personally.
One of the alternatives is to enter the workforce straightaway, to build up a CV. However, in doing so, you may find that you lack some qualifications to allow you to find full-time employment immediately. When the labour market is tight, higher education can serve as a buffer, delaying your entry into the workforce, and helping increase the likelihood of employability through gaining qualifications. As a result, it potentially helps lessen the occurrence of youth unemployment.
Rising numbers of people educated to degree-level mean a greater proportion of the population is expected to face increasing costs, particularly for tuition fees over time, potentially widening the scope for more people to seek out student finance in the form of tuition fee or maintenance loans.
But higher education is just one thing young people can choose to do, having finished their A-Levels. A growing number have decided to stay out of higher education altogether and many choose an apprenticeship, which has become increasingly popular for those wishing to pursue a career in health, public services and care, as well as careers in business and law.
Going straight into the world of work is one idea if higher education seems too costly for you, but apprenticeships offer something a little different.
Based on the latest data, 814,800 people were participating in apprenticeships in England between 2017-18. 375,800 of these were apprenticeship starts and 276,200 were apprenticeship achievements, indicating a sizable number of people entering into the world of apprenticeships each year.
However, a research paper also claimed the number of apprenticeship starts had actually fallen slightly, after the introduction of a new apprenticeship funding scheme in May 2017.
Do you carefully budget your finances, now you're at university?
We’ve explored the things that led to the costs of higher education rising, but now we’re taking it back to what really matters: how it actually affects students.
It’s one thing to focus on the political debate, but that doesn’t tell you what’s actually going on, on the ground. That’s why we asked all of the students in our poll whether they felt like they were adequately placed to actually handle their own finances.
A clear majority of students are careful about budgeting their finances, once they reach university, but that’s not the same thing as actually feeling like they have enough to live on, which our poll indicated was certainly not the case. Despite taking care when managing a budget, students don’t feel like their universities are providing adequate support they need to help them manage their finances.
The one thing they need seems to be lacking, just as costs for higher education reach unprecedented levels.
Does your university provide the support you need to understand debt and manage your finances?
A majority of students feel like their universities aren’t forthcoming in giving the support and education they need to grapple with debt or actually handle the finances they are dealing with, meaning a narrow majority are carrying out their degrees, and not feeling like they fully understand what they might be dealing with, debt-wise.
This is something that the political debate surrounding higher education seems to be missing – our universities have room for improvement, to make sure students don’t pass through their degrees, without at least being given some kind of meaningful outline of what it means to carry debt and how to budget properly.
Student finance is already a very hot topic politically. One of the major considerations is related to the total cost of financing a growing number of entrants into the system of higher education; we’re talking about the total value of student debt here, for students past and present, as well as a little sneak-peak into what it could ultimately cost in the future, if projections are correct.
The accumulated value of student loans is estimated to be worth over £121 billion as of March 2019
As much as £16 billion is loaned to students per year
The total student loan debt pile is forecast to be worth £450 billion by 2050
Based on the existing data and the projections MPs are using, student debt remains and is expected to remain a growing issue. At present, student loan debts are written off 30 years after being taken out, provided that the individual is not in arrears.
When we asked about how they felt about their student debt, 42.8 per cent of students we spoke to admitted that student loan debts had caused them a significant amount of stress.
That’s close to half of all students admitting to significant levels of stress, directly as a result of having taken out a student loan. This stress could potentially risk derailing someone’s learning experience, as a little bit of stress at the wrong time could ultimately lead to them losing the ability to concentrate on their studies.
When we asked students about the stresses of student debt, we found out that the stress is not evenly distributed. In fact, the arts bear the brunt of it, with 47.7 per cent of students who took out a student loan for an Arts (BA) degree experiencing high levels of stress, but just 36.5 per cent of students using a student loan for a BSc degree reporting significant levels of stress themselves.
Struggling to do well in a degree you’ve worked hard to enrol for isn’t ideal, and it’s worth asking yourself whether you’re willing to pursue it if there’s the slightest risk that stress related to your finances could get in the way of it all.
Debt advice charity National Debtline claims the connection between debt and mental health is much closer than you might think. As many as 50 per cent of those who struggle with any kind of debt in life are also likely to be struggling with mental health problems.
Any kind of stress related to finances can have an adverse impact on mental health, and if it is allowed to fester without any kind of support, it can have negative consequences not just on lone individuals, but on society at large.
The stress of student debt has an impact on students in a disproportionate way, especially when it comes to gender.
Women appear to be facing more stress due to taking on student debt than their male classmates.
Male student debt loan:
Female student debt loan:
We’re seeing something of a pattern develop: women have a higher likelihood of participating in higher education and going on to take out a student loan. When we added to these findings, by asking both male and female students whether loans stressed them out, almost half of women were affected.
Intriguingly, out of all the students we asked in our poll, 79 per cent of all students who pursued BSc degrees told us they believed that student debts were worthwhile, as they would eventually earn more money after graduating. The figure was marginally different among students pursuing an Arts (BA) degree. For those in BA degrees, 72.6 per cent had the same confidence that their student debts were something they believed were worthwhile, if it meant a potentially higher salary upon graduation.
These findings suggest that, at least in these two types of degrees, roughly a quarter of students simply don’t believe their debts are worth the price they would have to pay, to try and find a job that would earn them more money.
In another recent survey we carried out, we revealed the following:
Mental health is something that can pose a challenge to people no matter their age. For some, university is an experience that can potentially be responsible for triggering mental health issues. If these issues pass by during an individual’s studies in higher education, there is a risk that they could persist as the person progresses onto each stage of life that follows.
As our research shows, mental health problems can persist even in the workplace, possibly long after the individual has graduated and they have become a part of the workforce. While individuals have the responsibility to have regard for their own mental wellbeing, without a doubt, our institutions have an even greater responsibility to ensure that there are the adequate levels of support available to people, especially those in higher education, as they enter into what is one of the most transformative moments of their lives so far.
As these comments demonstrate, the individual perceptions students have of their financial situation risks pushing them out of higher education altogether in some cases. Eleven per cent of the UK population holds some kind of student loan; it’s crucial for students to receive the support they need when budgeting their student finances.
We’ve looked at some of the financial and emotional costs that a student can face. However, is it even possible to find a good job as a result of a degree? On the face of it, a degree is a net positive, at least in a financial sense.
Graduates are estimated to earn an average of £10,000 a year more than peers who didn’t go to university.
But are better salaries the actual definition of a good job? With that in mind, let’s ask ourselves: what is a good job? In the event that you chose to forgo a university degree for some reason, could you still pursue a good job?
A good job doesn’t just need to be well-paid. By taking what we have learned about the impact of debt on mental health, as well as the lived experiences of those with mental health problems in the world of work, we can see that a good job must also be something that gives meaning to an individual, as well as to society as a whole. A good job would need to satisfy a person’s psychological requirements, allowing them to be confident in their abilities and give them a sense of progression through their professional life.
Adequate support, along with secure employment is just another part of what makes a good job, as workers would need to feel like they have a sense that their studies were worth it and have brought them to a place where they can grow as people.
As our poll revealed, a significant number of students are stressed about being able to pay down student loan debts and finding a job that pays them well enough.
For former students, the income from a higher-salary role should mean that you’re able to pay down your student debt faster. In an ideal world, it should also mean you’re carrying out work that makes you feel like you’re doing something you enjoy and that gives you purpose.
"The current job market is so volatile that there is even more pressure being placed on the student’s education, where the perception is that even 1 per cent extra on a course could make a difference, and students will pull out all of the stops to get that extra 1 per cent. All this does is just adds to the pressure the student is already under."
Alan Humphries, welfare adviser at Coventry University Students’ Union
As seen in the latest jobs report by the Office for National Statistics, average wages are rising at a post- financial crash high in nominal terms on an annual basis, at 3.9 per cent (excluding bonuses). Financial stability through well-paid jobs is one part of giving graduates peace of mind upon entering the workforce, but wages aren’t actually always the top priority for workers.
We asked students whether they had confidence about whether the costs of student finance were worth it in the end, and this is what they had to say.
Are you confident having a university degree will allow you to earn more after you graduate, ensuring the financial expenditure was worthwhile?
Out of all the students we asked in our survey, a majority reflected the attitude that students will seek a degree despite the costs associated. The enthusiasm from a majority of students to pursue a degree is commendable despite the costs it may involve, especially for tuition fees, but there are other alternatives to consider, aside from university degrees, including apprenticeships or internships.
You have the option of seeking qualifications through apprenticeships, without incurring student debts. Apprenticeships can also leave you with a good likelihood of finding a well-paid and fulfilling job when you finally enter the workforce.
As well as this, there’s always the option of forgoing any form of further education, by deciding to enter the workforce as soon as your A-Level results come through. This might be something to consider for those who wish to get some first-hand work experience as soon as possible, as the earlier start to your working life could help you build up a solid CV.
One size never fits all, so many of you will find the benefits of a degree outweigh the associated costs, compared with apprenticeships or going straight into work. Some of you might still wish to get qualifications but wish to avoid the costs of university tuition fees, leading you to pursue an apprenticeship, along with 800,000 people just like you.
What is clear here is that having some form of qualification, through university or apprenticeships, is a way of improving your chances of earning higher salaries. You just need to be sure that, if you require finance and choose a university degree, any increased potential for greater financial gain is sufficient to help you pay down student loan debts, having also found the kind of job that gives you a feeling of satisfaction and fulfilment.
The Real Cost of University
A good job might not necessarily have to involve going into debt. Participation rates for higher education have risen in recent years, but not everyone will have gone through the process of getting a degree in order to get qualifications, in order to boost employability later on.
The rising costs of higher education will probably leave you with a student loan to repay, but unlike loans in other contexts, there isn’t a bailiff to expect. The way student loans are repaid fits around your own personal situation, so if you find a job where your earnings are high enough, repayment will proceed, but you won’t be in trouble if your salary proves insufficient to meet it. In the long term, unpaid loans are simply written off, and you don’t get penalised for being unable to repay them back in full.
We’ve provided you with a basic history of student finance, giving insights into how it works, as well as the differences in opinion about how it should work. There are clear benefits to getting a degree, but some drawbacks as well. Some of these drawbacks, both mental and financial, directly impact you as an individual, and if left unchecked, could have a ripple effect on society as a whole.
Almost one in two students feel stressed directly because of their student loans.
Future governments may need to have a debate about whether the existing system is delivering value for money. Institutions might also need to consider what steps to take, to make sure those who are struggling have the support they need, to avoid the stresses of student finance spoiling their experience and potentially damaging their prospects of future success.
Remember, degrees are a long-term decision, and your studies may last three to four years, depending on the kind of course you apply for. You should be sure you’re in the right frame of mind to cope with the potential stresses that debt can put on you and critically that you have a plan to repay it that includes a realistic look at your future earnings and career path.
Disclaimer: The market research was carried out among a sample of 1,002 UK-based university students. All are full-time undergraduate students. The survey took place between 7th-15th August 2019. The research was commissioned by Know Your Money through independent market research agency Censuswide. Censuswide abides by and employs members of the Market Research Society. All survey panellists are double-opted-in (with an opt-in and validation process), in line with MRS and ESOMAR standards.