When preparing for university, one of the main things on many students’ minds is finance. The world of banking and tax is hard to understand at the best of times. As a student, you will likely not have much experience, so the system of student loans takes some time to get used to. Things can get especially complicated when working out how your student loan fits into the rest of your finances, for example, taxes and universal credit eligibility.
Initially, it can sound like your student loan counts as income, because it is money you receive on a regular basis. However, it is not quite that simple! Student loans are non-taxable income, meaning you do not pay tax on them. Additionally, these loans are usually not taken into account when applying for financial support, or credit cards – but this is unfortunately not true in all cases.
This article will cover everything you need to know about whether student loans are counted as income. Read on for information on taxable and non-taxable income, applying for credit cards as a student, and more.
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Is a student loan taxable income?
In the UK, there are two types of income: taxable and non-taxable. For most of the money you receive, you will need to pay tax – this is your taxable income. This is generally your salary from any jobs you have, but can also include other income, such as bonuses, and interest earned in some bank accounts.
However, not all the money you receive is taxed. Across the UK, the first £12,570 you earn in a financial year is tax-free. It is worth remembering that the financial year runs from April to April, rather than January!
There are other forms of income that are not taxable. This includes bursaries, scholarships and interest from ISA savings accounts. Most importantly for students, student loans are also non-taxable income.
This means that none of the money you receive as part of the student finance system is taxed, whether that be your tuition fee or maintenance loans. For more information about these types of loans, as well as applying for your student loan, have a look at this article from Think Student.
To learn more about tax while you are in university, check out this article from savethestudent.org. The first two ‘tax facts’ have plenty of information about tax and student loans, but the rest of the article is also useful for other tax questions you may have.
Does a student loan count as income for universal credit?
The system of state benefits in the UK is complicated, but one of the most common forms of financial aid is universal credit. When calculating your eligibility for this support, your student loan is indeed taken into account. Despite this, there are still exceptions. Tuition fee loans are not included, even though maintenance loans are.
Other forms of support you may receive, such as disability allowances, are not taken into account. As well as this, there are other forms of benefits apart from universal credit that you may be eligible for.
This is because your student loan will only be counted as income for one type of support called means-tested benefits. For a brief guide on how student loans affect the different types of benefits, have a look at this article from turn2us.org.uk.
Does a student loan count as income for tax credits?
As mentioned, there are lots of different types of financial support, and your student loan isn’t taken into account for all of them. For tax credits, your student loan is generally not used when checking your eligibility. However, there are still other conditions you need to meet. Read on for more information.
For example, if you are applying for working tax credits, you need to be working for a minimum of 16 hours a week. This may not be the case if you are working a part-time job alongside your full-time university study.
One type of benefit that is more common for mature students is child tax credits. However, student loans also work slightly differently if you are starting a degree aged 21 or older. Have a look at this Think Student article for a guide to getting a student loan as a mature student, and this Think Student article for more information on getting loans for a second degree.
Does a student loan count as income for credit cards in the UK?
As well as tax and benefits, credit cards are a major part of the financial system. As you may expect by now, this system can be complicated! Check out this article from moneyhelper.org.uk for a quick guide to credit cards.
In short, your student loan will not be counted as income if you are applying for a credit card. This is because the bank needs to see that you have an income that can be used to pay off your credit card bills at the end of each month. Your student loan is not counted, as it also needs paying back eventually.
This doesn’t mean that you cannot have a credit card as a student. You may still have a form of income, for example from a part-time job, or an allowance from parents. In fact, there are credit cards designed specifically for students, who are unlikely to have the time for a full-time job.
These typically have lower spending limits, and may have higher interest rates, than standard credit cards. This is to allow for the lower incomes of many students – but you still get many of the benefits of a credit card, such as payment protection, and improving your credit score. For a detailed guide to student credit cards, have a look at this article from savethestudent.org.