A Guide to Different Types of Student Loans in the UK

types of student loan

Anyone starting their journey toward higher education must have a thorough understanding of the student loan landscape. Different types of student loans are crucial for funding students’ academic endeavors because they provide the funds needed to pay for living expenses, tuition, and other necessary costs of attending school. 

In the UK, a variety of student loan options cater to the diverse needs of students, ensuring access to education regardless of financial circumstances. These loans serve as a vital resource for students who may not have the means to fund their studies upfront, providing an opportunity to pursue higher education without facing immediate financial strain. 

Let’s explore the different student loan types available in the UK and their suitability for aspiring scholars.

Types of Student Loans UK

Student loans are a cornerstone of higher education financing, offering essential support to students pursuing their academic aspirations. Understanding the types of student loans available is crucial for making informed decisions about managing educational expenses. Here’s an overview of the main types of student loans in the UK:

Tuition Fee Loans: 

These loans cover the cost of tuition fees charged by universities or colleges. The loan amount is paid directly to the educational institution, and the available funds depend on the institution’s fee structure.

Maintenance Loans: 

Designed to assist with living costs such as accommodation, food, books, and other essentials, maintenance loans are crucial for students’ day-to-day expenses. Eligibility for this loan requires proof of household income, and the maximum amount varies based on factors such as your city of residence, living arrangements, and age. Maintenance loans are typically disbursed directly into your bank account at the start of each semester.

Student Loan Options: Federal and Private

In broad terms, student loans can be categorized into federal and private loans, each offering distinct features and eligibility criteria. Federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, are administered by the government and come with fixed interest rates and various repayment options. 

On the other hand, private student loans are offered by banks, credit unions, and other financial institutions and typically feature variable interest rates and repayment terms. 

Here’s a breakdown of the main student loan options, along with their key features:

Student Loan Type

Type

Interest Rate

Repayment Term

Eligible Borrowers

Best for

Direct Subsidized Loan

Federal

5.50% (2023-24)

10 years

Undergraduates with financial need

Undergraduate borrowers from low-income families

Direct Unsubsidized Loan

Federal

5.50% for undergraduates, 7.05% for graduates (2023-24)

10 years

Undergraduates and graduates

Borrowers who don’t qualify for need-based aid

Direct PLUS Loan

Federal

8.05% (2023-24)

10 years

Graduates and parents

Graduate students who have maxed out unsubsidized loans; parents

Private student loan

Private

4% to 15%

5 to 25 years

Undergraduates, graduates, and parents

Borrowers who have maxed out federal loans; borrowers with excellent credit

Each type of student loan comes with its own borrowing limits and eligibility criteria. For instance, Direct Subsidized and Direct Unsubsidized Loans have maximum annual borrowing limits ranging from $5,500 to $12,500 for undergraduate students, with higher limits for graduate or professional students, up to $20,500 annually. 

Direct PLUS Loans, on the other hand, can cover any remaining college costs not covered by other financial aid, providing an option for borrowers facing additional expenses. It’s important for students to carefully consider their options and assess their financial needs before deciding on a particular type of student loan.

Contact us & Achieve Financial Success

1. Federal Student Loan Types

While numerous methods exist to fund college education, federal student loans stand out as one of the most sought-after options due to their flexible payment plans and typically lower interest rates. Within the federal Direct Loan Program, several types of loans are available.

Direct Subsidized Loans:

Designed for undergraduate students who demonstrate financial need, Direct Subsidized Loans offer the advantage of interest not accruing while the borrower is in school, during the six-month grace period, or during any deferment period afterward.

Direct Unsubsidized Loans:

Open to undergraduate, graduate, and professional students, Direct Unsubsidized Loans do not require a demonstration of financial need. However, interest starts accruing immediately, meaning borrowers accumulate interest during school, after graduation, and during deferment or forbearance periods.

Direct PLUS Loans:

Intended for graduate or professional students and/or parents of dependent undergraduate students, Direct PLUS Loans come with higher interest rates and loan origination fees compared to Direct Subsidized and Unsubsidized Loans.

Unlike other federal student loans, parent PLUS loans are taken out by parents directly. While students can make payments themselves, their parents will still be legally and financially responsible for repaying the full balance of parent PLUS loans. The loan will show up on only the parent’s credit report, not the student’s.

2. Private Student Loan Types

Well-known private student lenders include Sallie Mae, Discover, and Citizens Bank, among others. Private lenders offer diverse repayment terms, incentives, and consolidation options, sometimes providing very low-interest rates for borrowers with strong credit histories.

Undergraduate Loans:

Tailored towards undergraduate students, private student loans often feature various repayment terms and potential principal discounts upon graduation. However, unlike federal student loans, undergraduate private student loans often require a co-signer due to undergraduates’ limited credit histories.

Typically, undergraduate private student loans carry higher interest rates than graduate student loans and may have lower loan limits.

Graduate Loans:

Private lenders may offer specific loan options for graduate, law, medical, and business school students. Graduate or professional student loans from private lenders are less likely to require a co-signer than undergraduate loans and may feature higher loan limits, longer repayment terms, and lower interest rates.

Private graduate student loans also offer features tailored to the needs of graduate school, such as extended grace periods and in-school deferment periods, as well as additional deferment while students complete a residency.

Parent Loans:

Parents have the option to take out loans to assist with their children’s education. Parent loans come in both federal and private options.

A common federal option is the parent PLUS loan, which allows borrowing of the full cost of the dependent’s attendance, minus other financial assistance. To qualify, parents must have a good credit history and meet general eligibility requirements for federal student aid. 

Alternatively, parents may explore private student loans to secure better interest rates potentially. While the current direct PLUS interest rate is 8.05% for loans disbursed on or after July 1, 2023, and before July 1, 2024, private student loans may offer interest rates ranging from 4 to 15%, with some featuring variable rates.

How Do You Apply for a Student Loan?

Applying for a student loan in the UK is a straightforward process facilitated by the British Government, with all necessary information readily available on their website. Here’s a step-by-step guide to help you navigate through the application process:

Check Your Eligibility: Determine whether you qualify for a student loan based on your level of study – whether it’s undergraduate studies, Master’s studies, or doctorate studies.

Set Up a Student Finance Account: Create a Student Finance Account on the official government website. This account will serve as your portal for managing your student finances throughout your academic journey.

Choose Your Application Method: Depending on your preference, you can apply online or by post. If applying by post, ensure to find and download the appropriate application form from the government website.

Gather Required Documents: Make sure to include all necessary evidence along with your application, such as proof of identity or proof of household income. This documentation helps verify your eligibility and determine the amount of financial assistance you qualify for.

Check Application Deadlines: Be mindful of the deadline for submitting your application, as it varies depending on when your course starts. Missing the deadline could delay the processing of your application and disbursement of funds.

Contact us & Achieve Financial Success

Can International Students Apply for Student Loans in the UK?

International students often contemplate whether they are eligible to apply for student loans in the UK. Generally, eligibility for student loans is restricted to UK residents. However, there may be specific circumstances or loan programs tailored for international students. It is recommended that international students consult with their educational institution or relevant authorities to inquire about available funding options and explore potential avenues for financial assistance.

How Do Plan 2 Student Loans Work?

For individuals on a Plan 2 student loan, the repayment structure operates differently compared to other plans.

Repayment Thresholds:

One notable distinction lies in the repayment thresholds for Plan 2 student loans. These thresholds are considerably higher than those of Plan 1. Under Plan 2, the yearly threshold stands at £27,295, translating to a monthly threshold of £2,274. This means that borrowers under Plan 2 begin repaying their loans once their income surpasses this threshold.

When Do I Start Repaying Student Loans?

Upon graduation, the timing of student loan repayments commences, contingent upon meeting specific criteria.

Repayment Thresholds:

Repayment obligations kick in from the first April following graduation, provided that your income exceeds the applicable repayment threshold. For the 2023/24 academic year, these thresholds are as follows: £1,682 per month before tax for individuals with Plan 1 loans, and £2,274 per month before tax for those with Plan 2 loans. Postgraduate loan repayments are triggered once you earn £1,750 or more per month before tax.

Repayment Percentage:

It’s crucial to note that once your earnings surpass the relevant threshold, an additional 9% of your income will be allocated towards repaying your loan (6% above the threshold for postgraduate students). For further details on student loan repayment, please refer to the provided student loan repayment guide.

Ending Note

Understanding the different types available and their respective repayment structures is crucial for making informed decisions about financing higher education. From federal options like Direct Subsidized and Unsubsidized Loans to private alternatives tailored for undergraduates, graduates, and parents, there are avenues to explore based on individual circumstances and needs. 

Additionally, knowing when repayment begins, the applicable thresholds and the percentage of income allocated towards repayment are essential for managing student loan obligations effectively.

Support Centre Contact Details

Our customer care team at Evirtual Accountants will respond to your queries as soon as possible. We aim to provide you with the best possible service and look forward to hearing from you soon.

  • Head Office: +44 1217 835392 
  • Email: office@evirtualaccountants.co.uk 
  • Address: 862-864 Washwood Heath Rd, Ward End, Birmingham, B8 2NG
  • Opening times: 9:00 am – 5:30 pm, Monday to Friday. 

Table of Contents

Secure Your Financial Future 
Get the Professional Accounting & Tax Management Services
Book An Appointment