Thousands of students will be heading off for their first year of university in the coming weeks.

For many, managing their student loan will mark their first taste of financial independence.

But being a student comes with a hefty price tag, and nine in 10 university students say they feel overwhelmed when it comes to managing their finances, according to research from Visa.

With tuition fees for an undergraduate degree in England reaching up to £9,535 per year, and the maximum maintenance loan for students living away from home outside London coming in at £10,544, a three-year degree could cost more than £60,000.

Here we look at how to budget and sort your finances out if you are going to university. 

How student loans work  

There are two parts to a student loan, the tuition fee loan and the maintenance loan.

Most undergraduates are entitled to a tuition loan, currently capped at £9,535 a year. 

This is paid directly to the university by Student Finance - the partnership between the Government and the Student Loans Company, which runs the student loan system.

Maintenance loans to cover living costs are paid directly into students' bank accounts. For the 2025-26 academic year, students studying in England can receive a standard maintenance loan of £4,915 without submitting household income details.

Students with a family household income of around £62,350 or less may be eligible for a higher maintenance loan, so their parents will be asked to provide income details.

When do you pay a student loan back?  

They start to pay their student loan back once they start earning over a certain amount.

Unlike a standard loan, the system acts more like a graduate tax and increases the more you earn. What you pay back, and how, depends which of the five different repayment plans you're on. 

Most of those heading to university this year, along with anyone who started studying after 1 September 2023, are on Plan 5. This means they start to repay when they earn over £25,000.

In Scotland, though, students are on Plan 4 and will start to pay back the loan once earning over £32,745 a year.

Those on Plan 2, who went to university between 1 September 2012 and 31 July 2023, will start to repay their loan once their income is over £28,470. 

Those who started university before 1 September 2012 will be on Plan 1 and start repaying their loan once they earn over £26,056 a year.

All graduates, regardless of the plan they're on, pay 9 per cent of their income over that threshold, while those with postgraduate loans pay 6 per cent.

The length of time before the outstanding debt is written off was lengthened from 30 years to 40 years. This will increase the number of graduates paying their debts off in full.

What is the interest on student loans? 

Student loans start to accrue interest as soon as you start your course, and continues until you pay it off. The amount of interest you pay is set by the Government and changes every year. 

The level of interest applied to student loans is based on the Retail Price Index rate of inflation (RPI), which currently stands at 3.2 per cent.

However, when RPI soared to 13.5 per cent in March 2023, the Government introduced a cap of 7.6 per cent for all student loans.

Students going to university this year will be on Student Loan Plan 5. Their interest rate for the year starting on 1 September 2025 will be 3.2 per cent.

The current level of interest on the other plans is as follows:

Plan 1: 3.2 per cent

Plan 2: 3.2 per cent to 6.2 per cent, depending on income

Plan 4: 3.2 per cent

Postgraduate loans: 3.2 per cent to 6.2 per cent, depending on income

For Plan 2 and 5 loans, Those earning under £26,900 just accrue the RPI rate of interest, while those earning between £26,900 to £39,130 pay RPI plus up to 3 per cent, as the rate increases the more you earn.

Those earning over £51,245 are charged RPI plus 3 per cent.

How to make a budget

It's no secret that many students exist on a shoestring budget. However, making a weekly or termly budget can make managing your money easier. 

First of all, work out what your essential expenses are, including the cost of your rent, study materials, utility bills, food and transport - anything you can't go without. 

Once you've tallied them all up you can take away that amount from the sum of money you've got to work with, which could come from your loan, grants, earnings or gifts from family

'For students it will often make sense to break things down term by term and then set out a weekly budget with spending limits,' says Laura Suter, director of personal finance at AJ Bell. 'That allows you to keep track – if you overspend a little one week you can cut back slightly the next.'

After doing this, you should have a better idea of what's left for everything else, like going out, buying new clothes, and hobbies and interests.

A good tip is to move each instalment of your maintenance loan into a different account as soon as it's paid, and then pay your weekly budget back into your current account at the start of each week. 

You will receive the maintenance loan in three instalments each year, and this reduces the risk of accidental overspending.

Some students immediately transfer enough money for bills and rent for the full three months into a separate account, so they're never tempted to dip into cash meant for the essentials.

Budgeting tools and planners aimed at students can be found on website Save the Student and UCAS.

Understanding overdrafts

One of the main draws of a student current account is the sizeable interest-free overdrafts that come with them.

This essentially allows you to borrow money from your current account with no fees.  

This is a big benefit, as the interest charged on non-student accounts is substantial. On a standard bank account you'll get charged between 35 per cent and 40 per cent for an agreed overdraft - that's £350 to £400 in interest charges in 12 months on a £1,000 overdrawn current account. If you're borrowing £3,000 it's £1,050 to £1,200 per year.

However, it is really important to only dip into your overdraft when you have an essential cost to meet and there is no other option. It is also very unwise to go over the agreed limit. 

Overdrafts need to be paid back, and the 0 per cent interest offer will usually end when you graduate - so you don't want to be left with a big debt to pay then.  

There are several options for those seeking a student account this year. 

Santander's student account comes with an arranged interest-free overdraft of £1,500 for the first three years of study. This can increase up to £1,800 in the fourth year and up to £2,000 if students stay on to their fifth year.

Nationwide's current account offers arranged interest-free and fee-free overdrafts to students of up to £3,000 by the third year.

NatWest and RBS have accounts which offer a £500 interest-free overdraft in the first term of first year, which can increase to £2,000 in the second term of first year until the end of the second year. Students can apply for up to £3,250 interest-free from year three onwards.

Meanwhile HSBC's student account comes with a £1,000 interest-free overdraft in year one, increasing to £2,000 in year two and up to £3,000 in years three and after.

Rachel Springall, of comparison website Moneyfacts Compare says: 'The most generous overdrafts come from NatWest, HSBC and Nationwide Building Society, which could be a lifeline for students who need to borrow during their years of study.

'However, taking on some part-time work in between their studies to have a bit of disposable income is wise, because an overdraft will need to be paid back.'

Sarah Coles of stockbroker Hargreaves Lansdown says: 'You need to be really clear this is only for essential purchases if absolutely necessary – and you can never afford to go over your agreed limit. 

'When you graduate, you'll have to pay it off relatively quickly, so don't build up problems for yourself.'

How much of an overdraft you'll get in later years depends on your credit record and you need to ask for the increases at the end of the year, it does not increase automatically.