Cheer for students as loan rate falls

Most students heading for university this autumn will finance the bulk of their living costs by taking out a student loan. So here's some good news: although interest rates are on the up, the cost of borrowing for university living expenses is coming down. From 1 September this year, the inflation-linked interest rate on heavily subsidised loans from the government-backed Student Loans Company (SLC) will be reduced from 3.1 per cent to 2.6 per cent.

The other good news for students starting (or continuing) a course this academic year and next (including those taking a gap year) is that they won't face variable top-up fees of up to £3,000, even if they are still studying when the higher fees are introduced in the 2006-2007 academic year. And they will get the benefit of being able to defer payment of their tuition fee for 2006-2007 until after graduating.

Until then, however, students - and/or their parents - who don't get government help with paying the tuition fee (£1,150 in the 2004-2005 academic year) will still have to pay it in full at the start of the next two autumn terms.

For some students, there is possibly even better news: the return of the student grant. According to figures published by the Department for Education and Skills (DfES), around 40 per cent of full-time students starting at university in the 2004-2005 academic year will be eligible for the new Higher Education Grant, worth up to £1,000 a year.

Unlike a loan from the SLC, it will not have to be repaid after a student graduates. However, this new grant to help with living costs is means-tested, as is already the case both with government help with paying tuition fees and with payment of part of the student loan.

So only students from households with an income (after what the DfES calls 'disregards', which include pension contributions and tax credits) of less than £21,185 will be eligible for a grant. And only students with a household income of £15,200 or less will receive the full grant of £1,000. Students from households with incomes of between £15,210 and £21,185 will receive a partial grant.

Changes to the means-testing rules for the 2004-2005 academic year mean that many beneficiaries of the new grant are likely to be independent students (those over 25 or who have been self-supporting for at least three years before starting at university). This is partly because parental income is not taken into account when assessing an independent student's household income and partly because the first £10,000 of an independent student's income is now ignored (previously only the first £7,500 was disregarded).

But the new means-testing rules look less favourably on students who still live with one of their parents and that parent's new partner. Before these rules came into force, the income of the new partner was ignored when calculating a student's entitle ment to financial support.

Now, to bring the rules for student support into line with the rules for social security benefits, the new partner's income will be taken into account. However, the new rules apply only to new students, so those who have started already won't suffer from the change.

But students who are entitled to a grant or help with fees (or a bigger loan than the minimum, which is available to all students) will get the financial help due from the government only if they apply for it and (together with their parents, if applicable) are prepared to provide the detailed financial information required by the 28-page-long form PN1 'Application for higher education support 2004/2005'.

No one is obliged to give financial information but anyone who chooses not to - and so applies only for non-income-assessed support - will get only the minimum loan available, even if they are entitled to extra money.

For people who haven't yet put in an application for the 2004-2005 academic year, the bad news is that the deadline for ensuring that any support due is paid on the first day of term has passed (it was 2 July 2004 for new students and 28 May 2004 for current students).

However, a spokesperson for the DfES says: 'Local Education Authorities and the SLC will try to ensure that even late applications are processed in time for students to get at least some money on the first day of term.'

How much can you borrow this year?

In the 2004-2005 academic year, all students in England and Wales can borrow the basic loan entitlement of £3,790 if living away from home and London-based; £3,070 if studying outside London; and £2,430 if they live at home.

Whether students can borrow any more than this (which is 75 per cent of the maximum loan available) depends on a means test of the student's and parents' income, which also determines whether they qualify for help with the tuition fee of £1,150. If, in the 2004-2005 academic year, household income (after DfES disregards):

· is below £21,475, the government funds the whole of the tuition fee of £1,150 and a student can apply for the maximum loan available, which is: £5,050 for London-based students (not living at home); £4,095 for students outside London; and £3,240 for students who live at home

· exceeds £31,973, a student can still apply for the maximum loan available but must pay the full £1,150 tuition fee

· is around the £42,000 mark, a student (and/or his or her parents) must pay the tuition fee in full and top up the basic loan entitlement by making a contribution to living costs.

Contacts


For more information on student loans and other funding and grants for further education for students from England and Wales, phone the DfES information line on 0800 731 9133 and ask for the free guide 'Financial support for higher education students in 2004/05', which is also available from your local education authority or to download from www.dfes.gov.uk/studentsupport.

To get a rough idea of how much support you will be entitled to, use the interactive calculator at www.studentfinance direct.co.uk where, in future, you will be able to apply for student support online.

Support for students from Scotland is dealt with by the Student Awards Agency for Scotland (tel 0845 111 1711 or from www.saas.gov.uk which also has a calculator to help you work out how much you can expect.