Future Earnings Agreement: An alternative to fund university

In some cases, a traditional student loans isn’t the best option, especially if you're pursuing a postgraduate degree. Let’s take a quick look at Future Earnings Agreements, a new way to fund a postgraduate education.

A Future Earnings Agreement can help you pay for university by funding your tuition fees. It’s often the case that high-paying careers require expensive qualifications, which is where FEAs can help.

• What is a future earnings agreement?
• Who can take out a future earnings agreement?
• How much can I borrow with a future earnings agreement?
• How much do I repay on a future earnings agreement?
• Are future earnings agreements better than typical student loans?
• FAQs

What is a future earnings agreement?

Future Earnings Agreement is another option available to postgraduate students to fund their university degrees. In essence, it works the same as a normal student loan in that you borrow money to pay tuition fees with the intention of paying it back later once you begin earning.

However, there are several key differences with a Future Earnings Agreement. Firstly, you won’t pay interest on the amount borrowed at all—this means you won’t be chasing an ever-increasing figure that keeps rising with interest. The amount you pay back depends on the amount you earn: the more you earn, the more you pay back, the less you earn, the less you pay back.

Secondly, you will only repay a set percentage of your total salary once you pass the earning threshold, for a set amount of time. For instance, 15% of your salary once you earn over £35,000 for a maximum of 5 years (60 months) of total payments.

The first regulated provider of FEAs is a company called StepEx, which are partnered with a number of universities throughout the UK, including Cambridge, London Business School and many online schools.

Who can take out a future earnings agreement?

Anyone going to university in the UK to study for a postgraduate degree—who are from the UK or the EU—can take out a Future Earnings Agreement. You won’t be affected if you already have a traditional student loan or have found other ways to help you pay for university, as you would still be able to take out an FEA on top of another loan. Just be sure you can handle repaying both when the time comes.

You can apply before receiving an offer from a university.

How much can I borrow with a future earnings agreement?

With a Future Earnings Agreement, you can borrow up to the total tuition fees payable for that degree. So let’s say your postgraduate fees are £20,000, then you can borrow up to £20,000.

This is different to a traditional loan as the amount you can borrow isn’t necessarily capped. Student loans for students in England are capped at £12,167 if your course started on or after 1 August 2023, and £18,770 for Welsh students for 2023 to 2024, which may not cover your postgraduate tuition fees.

How much do I repay on a future earnings agreement?

You repay a Future Earnings Agreement by paying back a fixed percentage of your salary over a certain threshold, for a set number of repayments. Importantly, this is based on your predicted future earnings.

This is different to paying off a normal student loan, which is based on a percentage of your total salary past a minimum threshold, plus interest being added to the original sum to be repaid.

For example, say you borrow £20,000 to study with an estimated post-study salary of £35,000, you will repay 12.9% of your salary per year over a 5 year period (60 monthly payments). Over the course of repayment, you will pay back £22,575. However, this changes based on your salary.

There is a risk you could end up paying a lot more using a FEA—because the FEA comes with a maximum repayment cap, but this could be quite high. For example, you could be offered an FEA of £10,000, with a maximum repayment cap of £20,000. Remember that if your income is higher, you pay more—because you pay a percentage of your income. Higher income = higher repayments each month. If your income is higher, you could end up paying as much as the maximum repayment cap, which in this example was** 2X the cost of the original loan**.

For university repayments, you will typically have a 60 month repayment period (or 5 years). This means you must pay 60 repayments, which also pause if you stop earning any money and won’t add interest. Let’s say after 30 months or payments you take a 3-month break from work. In this case, you will still have 30 repayments left regardless of the work break when you return to work.

StepEx has a handy calculator to show how much you repay based on future earnings.

Are future earnings agreements better than typical student loans?

Whether a Future Earnings Agreement is better than a typical student loan is down to your personal circumstances, and how much you expect to earn after you graduate.

The biggest selling point for the Future Earnings Agreement is transparency. Interest charges on a traditional loan can be confusing—interest is added constantly and it’s difficult to understand when you will have paid off your loan by.

One downside, for lower earners post-study, is that you would be paying a considerable amount of your salary on repayment per month/year. For instance, someone earning £30,000 post-study can be expected to pay back around £3,000 of their salary through repayments each year over their agreed payment period.

Another downside, for higher earners, is that you could end up paying a lot more back in repayments, up to the maximum repayment cap.

However, it’s important to note that you won’t start making repayments before reaching the minimum income threshold. This is often between £21,000 - £30,000, but it can depend on your contract.

FAQs

1. Are my repayments capped?

Yes, your repayments are capped in the sense that you do not have interest being added constantly like a normal student loan, and there are a set number of repayments to be made. The ultimate amount you pay depends on the amount you earn post-study. They are also capped by the maximum repayment cap.

2. When will I start making repayments?

You will begin repayments when you reach the minimum income threshold for making payments. StepEx's representative example puts the minimum income threshold at £30,000, but this will vary depending on an individual’s agreement.

3. Can undergraduates take out a future earnings agreement?

Future Earnings Agreements by StepEx are only available for postgraduate courses at the moment.

4. Is it just for the UK?

Any postgraduate students from both the UK or EU can apply for a Future Earnings Agreement.