For those of you in the U.S., you’ve probably never heard of a student maintenance loan — or at least you probably don’t know anyone who has gotten one. That’s because they are not a U.S. student loan product. Maintenance loans are issued by the U.K. government for students attending a university in the U.K.
So how is a maintenance loan different from a tuition loan? Read on, eager grasshopper.
How Do They Work?
U.K. students can take out two loans — a student maintenance loan and a tuition fee loan. The maintenance loan is for everyday expenses and is paid directly into the student’s bank account. The tuition fee loan is similar to U.S. student loans. It is paid to the school and not the student. The application is the same for both loans.
Students can choose to take out just one of the above types of loans or both. The maintenance loan has three disbursements throughout the year that coincide with each of three semesters. If your final school year is only half a year because you’re graduating, your maintenance loan will likely be half the size of the previous year’s loan.
Maintenance loans can be used for almost anything, including clothes, food, rent, utilities, and even nights out with friends. Of course, students will need to budget their money if it is all they have to live on. Maintenance loans are not used for tuition. That is the purpose of the tuition fee loan.
Sometimes the loan may not arrive in time to pay the next month’s rent. If the student is living on campus, the university will wait until the maintenance loan disbursement occurs for the housing payment. For this reason, students don’t have to worry about being kicked out of their dorm. Students in a similar situation off-campus will have to make arrangements with their landlord.
There are eligibility requirements for receiving a maintenance loan, but most students will have no problem meeting them. The five main criteria are:
- The university or college you’re attending
- Courses you’re taking
- If you haven’t studied a higher education course before
- Your age
- Your nationality or residency status
The full requirements can be found at https://www.gov.uk/student-finance/who-qualifies. From the gov.uk website, you can also check that your course and school meet the requirements. Part-time students must meet an additional requirement of “course intensity” of 25% or more.
As the U.K. is made up of Northern Ireland, Wales, England, and Scotland, maintenance loan requirements can vary across those countries, especially income requirements.
Similar to the U.S. student loan program, those who have a higher income will receive a smaller amount. Those with a lower income will receive a larger amount. As well, whether you are living at home plays a role in the amount you’ll receive. Those away from home tend to receive more.
Maintenance loan interest rates are based on the Retail Price Index (RPI), which is also called the rate of inflation.
For most students, the total rate will be some form of RPI + 3%. Lower-income students may only pay RPI with nothing else tacked on. Students who had graduated and now earn more than when they were in school may end up paying the highest rates. Interest rates will also vary depending on the country.
Paying Back Your Loan
U.S. students might be surprised to hear that maintenance loans are canceled after 30 years (25 for Northern Ireland). This means the student’s loan is forgiven and they do not have to pay it back, no matter how little they have paid on it.
Repayment on maintenance loans is tied to earnings. Once a graduate’s earnings reach above the repayment threshold, repayment begins. U.S. students only wish such a system existed in the U.S. If the student loses his job and his income falls below the repayment threshold, the loan doesn’t need to be paid back. This is similar to a U.S. student loan hardship deferral.
Often, the maintenance payment is taken directly from the student’s paycheck.
Maintenance grants were available until they were removed from the 2015 budget because they were “unaffordable.” Because grants don’t have to be paid back, these were much better than maintenance loans. Maintenance grants helped lower-income students the most since they were the ones who often took out the most in loans. Some in the government want to bring these back, but there haven’t yet been any firm announcements.
For U.K. students, especially those not living at home, maintenance loans can be a great way to help pay for non-tuition expenses. They have some nice features, including pausing payments if your income falls below the repayment threshold, and they also have very reasonable rates. As well, the repayment threshold increases each year.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.