Student Loans

Many of you may have been to university and fear the day that Student Finance will come knocking at your door, asking you to repay that rather hefty student loan.

This blog will aim to target the most common questions that we are asked regarding student loans and will concentrate on students that studied in England, Northern Ireland and Wales as the rules vary slightly for Scotland.

“When do my repayments start?”

The amount you are required to pay back is dependent on what Plan you are on and your total yearly threshold or gross income.

A common misconception about student loans is that once this threshold is reached, you will be charged a percentage of your entire earnings.

Instead, you will only be required to pay back a certain percentage on any earnings OVER the threshold – again this is dependent on that type of plan you are on.

“How do I know what Plan I am on?”

  1. Plan 1 Student Loan

This loan is applicable to students who would have started their undergraduate course before the 1st September 2012.

Those of you on this plan will be required to make repayments towards your student loan once your annual salary exceeds £18,935 (£1,533 per month & £354 per week).

  • Plan 2 Student Loan

This loan is applicable to students who would have started their undergraduate course after the 1st September 2012.

Those of you on this plan will be required to make repayments towards your student loan once your annual salary exceeds £25,725 (£2,144 per month & £495 per week).

  • Postgraduate Loan

This loan is applicable to those of you who would have taken out an additional loan to help with course and livings costs whilst you studied for a master’s course.

Those of you on this plan will be required to make repayments towards your loan once your annual salary exceeds £21,000 (£1,750 per month & £404 per week).

“How much will I need to repay?”

Plan 1 & 2 Student Loan   9% on earnings over the threshold
Postgraduate Loan       6% on earnings over the threshold

For example:

Bob started University in 2000 and took out a Plan 1 student loan – after graduating in 2003 and starting working for his new employer immediately, by 2018 he was earning £50,000 gross per annum.

£50,000 – £18,935 threshold = £31,065

£31,065 x 9% = £2,796

Per month = £233

Jess started University in 2012 and took out a Plan 2 student loan – after graduating in 2015 and starting working for her new employer immediately, by 2019 she was earning £30,000 per annum.

£30,000 – £25,725 threshold = £4,275

£4,275 x 9% = £385

Per month = £32

“How does the interest on my loan work?”

Unfortunately, like all loans, interest will be charged on the amount borrowed from the day the first payment is made to you. This interest rate is based on the retail price index which takes into account changes in the general cost of living in the UK.

The amount of interest charged is generally calculated at a fixed 3% plus RPI for Plan 2 & postgraduate loans.

The amount of interest is reviewed every September when the new academic year begins.

Postgraduate Loan       Currently charged at 1.75%
Plan 2 & Postgraduate Loan   Currently charged at 5.40%

“When will my loan be written off?”

Plan 1:

  1. If you took out the loan before 2006 then any outstanding balance will be written off when you turn 65.
  2. If you took out the loan between 2006-2012 then any outstanding balance is written off 25 years after the April you were first due to repay.

Plan 2 & Postgraduate loans:

Any outstanding balance is written off 30 years after the April you were first due to repay

“What if I am employed?”

If you are employed, your employer will deduct and collect any student loan payments and will send them off to the relevant provider each time that you receive your salary – be that weekly, monthly, every fortnight etc.

Payments will automatically stop if your total income falls below the designated threshold.

If at the end of the year you have paid some of your student loan but your income does, in fact, fall below the threshold, you will be entitled to a refund.

“What if I am self-employed”

If you are self-employed, however, you will be required to state on your return which plan you are on and HMRC will calculate what you owe in repayments – or your accountant will calculate it for you.

If you have already made repayments through a salary/employer in the year HMRC will deduct this from the total amount you are required to repay.

Need help or advice over your student loans?
Contact

Matthew Lay PJCO Peter Jarman
Matthew Lay

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