What is a Maintenance Loan in the UK? A Guide for Students

University is expensive. Tuition in the UK costs students nearly £10,000 per year. However, that figure doesn’t even account for the full cost of attendance. While you attend university, you’ll also need to cover all of life’s other expenses—rent, groceries, transportation, and more. Regardless of whether you attend university in London, Manchester, or Edinburgh, the cost of living can add up quickly.

To help cover those costs, most students in the UK will take out a maintenance loan. A maintenance loan is a type of student finance offered by United Kingdom governments to help you cover the life expenses that your Tuition Fee Loans don’t pay for—housing costs, groceries, transportation, and more.

Maintenance loans are based on your household income, what country you hail from in the UK, and where you’ll live during your studies. You’ll be on Plan 1 if you’re a Northern Irish student, Plan 2 if you’re an English or Welsh student, or Plan 4 if you’re a Scottish student.

Who is Eligible for a Maintenance Loan?

In most cases, if you’re entering undergraduate studies for the first time, you’ll be eligible for a maintenance loan. However, eligibility for maintenance loans does hinge on a few factors:

• Residency: Maintenance loans are available to students who are citizens of the United Kingdom, or who have been residents in the United Kingdom for at least three years prior to the start of their course.
• First time studying: You typically can only receive a maintenance loan for one program, so you’ll need to be entering your university for the first time.
• University eligibility: The institution you’ll be attending and the program you’ll be studying in both need to be recognised in order to receive a maintenance loan. Fortunately, the vast majority of universities and programs are, so this isn’t likely to be an issue for you.
• Age: Finally, maintenance loans are primarily designed for students who are entering university after their A levels. While you won’t be automatically ineligible, your loan will be calculated differently if you’re over 25, or over 60.

It’s important to note that while these are general eligibility rules, they aren’t absolute. If you’re worried about your eligibility, get in touch with your respective student finance agency to discuss your specific scenario.

What are the Benefits of Maintenance Loans?

The primary benefit of maintenance loans are that they help you cover the expenses you’ll inevitably face during university. Courses, lectures, and studying take a lot of time, and even if you get a part-time job, it can be hard to earn enough to cover your expenses. Additionally, maintenance loans have:

• No impact on your credit score: Because maintenance loans and student loans are deducted directly from your income, they aren’t recorded on your credit report. Therefore, they’re unlikely to impact your ability to gain approval for credit after graduation.
• Friendly repayment terms: The repayment terms for maintenance loans are one of the best benefits, so let’s dig into them a little more.

How Do You Repay a Maintenance Loan?

Repaying a maintenance loan is quite simple because it uses the same Pay As You Earn (PAYE) scheme that taxes, National Insurance, and tuition loans rely on. This means that beginning the April after you graduate, payments for your maintenance loan and your tuition will be automatically deducted from your income above a certain threshold.

For each loan plan, 9% of all pre-tax income above the following thresholds will be deducted to repay your maintenance and student loans:

• Plan 1: £20,195 a year (£1,682 a month)
• Plan 2: £27,295 a year (£2,274 a month)
• Plan 4: £25,375 a year (£2,114 a month)

Fortunately, the deduction from your income will be automatically changed or stopped as your income changes. This way, you’ll never have to worry too much about whether you’ll be able to afford your repayment.

Do Maintenance Loans Have Any Risks?

Maintenance loans are a low-risk method of borrowing. Two risks that students commonly wonder about are not being able to find a job following their studies, and accruing interest on their debt. However, due to the way maintenance loans are repaid, these risks won’t impact you the way loans from a bank would.

For example, repayments are only deducted from your income once you meet certain income requirements. If you can’t find work immediately after graduation, you won’t be forced to make repayments you can’t afford.

Overall, maintenance loans are a safe way to borrow money. Repayment only starts when you’re financially ready to make payments, and debts are cancelled after 30 years, meaning many people will never repay their full student debt.

Download the Pave App to Start Building Your Credit Score Today

When you start university, you’ll have a lot on your plate, and it can be hard to find the money for books and course materials, and everyday expenses like groceries and rent. Maintenance loans can help alleviate that burden.

However, while a maintenance loan will help you cover your cost of living, it won’t help you build your credit. Despite that, university is a great time to start building your credit. Maintenance loans and tuition loans won’t hurt your credit score, but it’s wise to note that they’re the exception, not the rule. Other types of borrowing will have strict payment terms, and failing to meet those requirements can seriously damage your credit score.

With a good or excellent credit score, you’re more likely to be eligible for credit products with more favourable payment terms and interest rates. Therefore, it’s wise to take the time to familiarise yourself with your finances and start building your credit during university. Don’t know where to start? Pave can help.

Pave reports your payments to credit reference agencies, monitors your bank account and lets you know when your bills are coming up, and makes personalised recommendations to build and improve your credit score.

To see how Pave can help you build your credit score, download from the App Store or Google Play today.