How Student Loans Are Different In The UK vs. The US

You’re probably not surprised that many UK students get student loans, just like American students.

But you may be surprised to hear that their student loan system isn’t that much different than ours – with the main difference being the repayment program. 

Let’s take a basic look at how student loans compare in the United Kingdom vs. here in the United States, and what the US could learn from our friends across the pond.

Getting a UK Student Loan and The Costs of Tuition

The UK has two different types of student loans:

• Tuition Fee Loan: This is the loan that covers your tuition
• Maintenance Loan: This is the loan that you can get that covers your living expenses

This is different than in the United States, where all of our loans essentially cover both tuition and living expenses if needed, plus anything else that a student wants to spend the money on. The UK government caps the maximum amount that students pay for tuition each year.

Currently, the cap is set to £9,250 (which, as of 2024, was approximately USD$11,700). That means, no matter what – whether a student gets a loan or not – the tuition will be a maximum of £9,250 per year. As for that loan? The UK will lend up to £9,250 each year as well, so you can always get a loan to cover your full tuition each year if you need it. And even if you don’t get a loan, that’s still the maximum amount you’ll pay in tuition. It makes for much easier planning and budgeting.

The US federal government also has caps for what they will lend, but not what colleges can charge.

As for that maintenance loan, there are caps on the amount they lend, which varies based on your living situation. Here are the UK maintenance loan caps for the 2023-24 academic school year:

• Living with your parents — Up to £8,400
• Living away from your parents, outside London — Up to £9,978
• Living away from your parents, in London — Up to £13,022
• You spend a year of a UK course studying abroad — Up to £11,427
• If you’re 60 or over on the first day of the first academic year of your course — Up to £4,221

That means, if you take on loans for tuition and for living expenses, and go to school for 4 years while living away from your parents in expensive London, the most you’ll ever be in debt is £89,088 (about USD$113,000 in 2024). And while that may seem like a lot (it is), it is the absolute maximum. That differs from here in the United States, where students can borrow just about any amount they want, and spend it as they wish.

The average amount of student loan debt in the UK for students who began school in 2022 is forecasted to be £45,600 (roughly $58,263). For comparison, the average student loan debt for the 2023 graduation year is estimated to be $37,650. While that is not a perfect comparison, it’s still surprising to learn that UK students have more student loan debt than those in the US, on average. 

Related: How Student Loans Work: Applying, Borrowing, And Paying Back

Paying Back A UK Student Loan

Just like in the United States, you must pay back your student loans. However, the UK has an interesting repayment process that makes it easier for borrowers to get started without drowning in student loan debt.

First, you only make payments on your student loan if your income is over a certain threshold, depending on which Loan Plan you are on (which varies based on which part of the UK you are in) and your payment frequency.

You have to pay a percentage of any income above those thresholds to repay your student loans. You’ll repay 6% of your income over the threshold if you’re on a Postgraduate Loan plan, and 9% of your above-threshold income if you’re on any other Plan.

Also, just like in the United States, you’ll have to pay interest on UK student loans. How much interest you’re charged depends on which plan you’re on. As of 2024, the interest rates were:

The interest rate is tied to the rate of inflation, so it can vary over time.

The average student loan payment in the England is £85 per month (about $108). While the average student loan payment in the US is $503. This is where the affordability issue comes in for the US.

Plus, in this income-based repayment system, the loans will be canceled under the following scenarios, even if they aren’t fully repaid:

• After 30 years
• If the borrower dies or becomes disabled

So, unlike in the United States, where you will have your loans forever if you can’t repay them, the UK system discharges them at 30 years in all circumstances.

Another interesting feature of UK student loan repayment is that it is handled like payroll taxes once you’re employed. Since all of the loans are handled by the government, once you’re working, your repayment amount is taken out of your paycheck with your taxes. So, you never need to worry about it unless you work abroad.

There are private student loan companies in the UK, but those loans are not given any special treatment, and are treated just as any other personal loan. The payments are not income based or written off after any set amount of time. 

Related: How To Pay For College: The Best Order Of Operations

Takeaways Here For The United States

Despite the fact that loans are actually higher in the UK, the monthly payments are much lower and then discharged after 30 years. It’s an interesting system that if implemented here would provide a lot of relief to borrowers. 

The fact that we have a thriving private student loan industry here makes things a little bit more complicated, but starting with changes to federal loans would be a good start. 

What are your thoughts on the UK student loan system, and what we could do better here in the United States?