How to graduate without expensive debt

justin schamotta
By Justin Schamotta

graduate without debts

There's no doubt that, for the vast majority of students, going to university necessitates some tough financial decisions.

The need to fund both living costs and tuition fees, and the loss of or reduction of grants in favour of loans, leaves many wondering if they can afford it, or whether it'll be worth it in the future.

However, while the thought of graduating owing a large amount of money can be frightening, it needn't stop people. Student finances can be daunting, but a slight shift in thinking, and being as organised as possible, can help students from all manner of backgrounds get their degrees without feeling crushed by expensive debt.

In this guide, we hope to explain how.

1. Make use of cheap borrowing

Student loans are not like normal debts

Universities can charge up to £9,000 a year in undergraduate tuition fees - and from the start of the 2017 academic year some will be able to charge up to £9,250.

Newspapers and student organisations are right to be concerned that such costs can result in students graduating with debts in the tens of thousands - but they often don't consider that they're debts of a different kind.

Most British students in higher education are eligible for student loans designed to pay their tuition fees and help with living expenses. They're not without their faults, but they're very different from typical consumer and commercial debts, such as personal loans and credit cards.

Issued by the Government-backed Student Loans Company, the loans consist of a tuition fee loan of up to £9,000, paid directly to the institution, and a maintenance loan.

While the amount a student needs to borrow for tuition fees will be dictated by the particular university, the maintenance loan is based on the student's household income.

The maximum standard maintenance loan available to a student living away from home outside London is £8,200. For those living in London, the maximum is just over £10,700, while for those staying at home, it is £6,904.

Students from England or the EU can get an idea of how much they might receive by using the Government's Student Finance Calculator, available here.

Wherever they're from, and however much they're entitled to borrow, full time students won't have to think about paying off their loans until at least the April following graduation.

Part time students will need to think about starting repayments from the April four years after the first day of the course, even if they're still studying.

However, repayments will begin only if the graduate is earning above £21,000 per year before tax - and if their income drops below this, repayments will be paused.

Graduates who are earning enough to have to make repayments will find that 9% of their earnings over the £21,000 threshold will go towards loan repayments.

So, for example, a graduate who earns £22,000 before tax could expect to have to repay 9% of £1,000 (i.e. £90 a year, or £7.50 per month).

The Government give the following figures as guidelines for how much people earning different amounts will pay:

Annual income, before tax Monthly income before tax Monthly repayment
Up to £21,000 Up to £1,750 £0
£22,000 £1,833 £7
£25,000 £2,083 £30
£30,000 £2,500 £67
£35,000 £2,916 £105
£40,000 £3,333 £142

Student loans are written off after 30 years. It may not be how they hope to see their careers going, but those graduates who never earn above £21,000 will never have to make any repayments.

The £21,000 threshold has been in place since before 2012. If and when it does rise, it will be in line with average earnings.

What frightens a lot of people is the fact that their loans start accruing interest from the day they receive their first instalment, at a rate of RPI plus 3%, and they continue to incur interest at varying rates until the loans are paid off in full or written off.

Once recipients have finished studying, however, all but those earning more than £41,000 will find that the rate of interest charged on the loan balance will drop:

Annual income, before tax Interest charged
Up to £21,000 RPI
From £21,000 to £41,000 Between RPI and RPI plus 3%
More than £41,000 RPI plus 3%

The thought of graduating owing thousands of pounds, and having that balance growing over time, is daunting - but here's where that shift in thinking can help.

Consider those student loans not as loans in the normal sense, but as more like an extra tax on graduates. That doesn't make them any more pleasant to have to pay, but like other forms of income tax, repayments are linked to earnings - so they should never be more than borrowers can afford.

Not everyone pays £9,000

The second thing is that the £9,000 figure is the maximum the universities can charge. Although research suggests that in 2015, more than half of universities in England and Wales were charging this much, it also means that a significant proportion were charging less.

How high the fees are also depends on where students are from and where they want to study. Students should check with individual universities to gauge costs - but they should bear the following in mind:

Students from Northern Ireland who choose to study in their home country face maximum fees of £3,925; Scottish students studying in Scotland do not have to pay any tuition fees.

Wherever in the UK Welsh students choose to study, the maximum tuition loan they'll need is £3,900, as the Welsh Government will cover the rest of the fee where needed.

Unfortunately for students from England, the maximum fee will depend entirely on their choice of university, and can be up to the full £9,000 allowed.

More cheap borrowing

After student loans, the next best source of low interest finance are student bank accounts which offer interest free overdrafts of up to £3,000.

Most of the major banks offer a tiered system whereby the overdraft is increased each year.

These overdrafts are in no way "free" money - like loans, they need to be paid off after graduation - but most banks do give graduates time to do that.

Some allow graduates to keep their student accounts on the same terms for up to a year afterwards, others will be converted into graduate accounts that reduce the interest free limit in stages over up to three years.

So, for example, a £1,500 overdraft may continue to be completely interest free during the first year after graduating, but reduced to £1,000 interest free in the second year, then to £500 in the third, before being removed or brought in line with the bank's standard overdraft terms.

2. Check out education grants and scholarships

As well as the standard kind of maintenance and support grants available to those with low incomes or extra needs, there are a wide range of other grants and bursaries designed to encourage into education people who might not have otherwise thought about it, or to help cover extra unavoidable costs.

Scholarships, meanwhile, can reward high achieving students of any background.

Maintenance grants

Students from England are no longer eligible for standard maintenance grants; the amount they can borrow in maintenance loans has been increased to make up for this.

Even so, there is still extra help available in the form of other grants and allowances: those with low incomes, certain disabilities, or who have responsibility for a child or young person in full time education, for example, are often eligible.

National funding bodies
Student Finance England
Student Awards Agency Scotland
Student Finance Northern Ireland
Student Finance Wales

Students from the rest of the UK should find that there are still maintenance grants (or bursaries in Scotland) available from their national funding body - links on the right - depending on their household income.

Every home country also offers Special Support Grants to those with particular circumstances, such as disabilities or caring responsibilities. Again, check the links to the right for information.

Education grants

But there are also grants available from other organisations, aimed at helping students from poorer families, unusual backgrounds, or specialised interests, to pay for the costs associated with university life.

Check the Educational Grants Service run by Family Action for more information: they have a searchable database containing more than 30 educational trusts.

Students from Scotland whose household income is less than £22,000 a year, or who get particular benefits, may be eligible for a £200 grant from ILA Scotland.

Universities that charge more than £6,000 a year in fees must be able to provide support for students from poorer backgrounds.

This support can include bursaries, scholarships or even fee waivers. Check with the individual university to find out what's on offer.


Seek out scholarships and bursaries through sites such as Scholarship Search and Studentcashpoint, or through the university you attend or want to apply to.

Be creative when searching: many scholarships cover a specific cost within an undergraduate degree, such as the opportunity to study abroad.

Note that postgraduate programmes often allow students to apply for funding as part of their standard application process: keep a close eye on these, as they're often awarded on the basis of family heritage or research interest rather than need.

3. Avoid high rate borrowing

When finances are tight, borrowing outside of the normal student channels can seem tempting.

Unless students are holding down a regular job in addition to their studies, credit cards and commercial loans are a definite no no - even so student credit cards are still unsuitable for actual borrowing.

Student loans are like a benign uncle when compared with the brutal tyranny of a commercial loan. Consider the differences between the two:

Unlike student loans, commercial loans appear on credit files, the payments made on them aren't proportionate to income, they don't take into account periods of unemployment or illness and their issuers will employ debt collectors to chase up missed payments.

And then there are the interest rates.

While the interest rate on a student loan is set between inflation and inflation + 3%, the average APR on a credit card has topped 20%; as students have very little credit history they can expect to be quoted rates that are much higher.

» Read more of the latest news

» Search for more guides on money

Follow us or subscribe for FREE updates and special offers