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Financing your studies

Repaying your student loan

All about student loan repayments – including how much you pay, when you pay it and what happens if you drop out of university.

Young woman taking money from ATM

 

CORONAVIRUS UPDATE: In spite of the uncertainties created by the current situation, you must apply for student finance as usual. Funding agencies are working hard to process all applications.

 

CONTENTS

  1. What are student loans?

  2. How does student loan interest work?

  3. Student loan cancellation

  4. If you drop out of university

  5. If you move abroad

What are student loans?

If you’re eligible, you can receive a student loan to financially support your university tuition and living costs. The Student Loans Company manages all student loans, no matter where in the UK you attend university.

When you take out a UK student loan, you deal with the student finance body for the nation where you originally live: England, Northern Ireland, Scotland or Wales. Unlike a commercial loan, what you repay is based on your earnings, not how much you borrowed. For undergraduates, student loans may look like a worrying amount of debt – but you only pay back 9% of your earnings above a certain income.

Current undergraduates fall under one of two student loan repayment systems – Plan 1 or Plan 2 – which have different thresholds and rates for repayment. Plan 1 is applicable to undergraduates with student finance from Northern Ireland and Scotland. Plan 2 is applicable for undergraduates from England or Wales who started their course after 2012.

When do student loan repayments start?

You become eligible to start repaying your student loan from the April after you've finished or left your course. Whether you pay or not depends on your income.

There's a minimum income 'repayment threshold' that you have to earn before you begin to repay your student loan. The repayment threshold is set by the government and subject to change. Since 6 April 2020, you need to earn more than the following to pay back your loan:

Nation/Plan Northern Ireland and Scotland (Plan 1) England and Wales (Plan 2)
Annual income £19,390 £26,575
Monthly income £1,615 £2,214
Weekly income £372 £511

The Scottish Government has committed to raising the repayment threshold for students from Scotland to £25,000 from April 2021.

If you’re from England or Wales and started your course before 1 September 2012, see GOV.UK for information about loan repayments. 

How do you repay your student loan?

If you’re above the repayment threshold, you pay 9% of your income. 'Income' includes earnings from employment, self-employment or rental income. Also, if you get more than £2,000 from savings interest, pensions or from investments, this counts as part of your income.

If you're employed in the UK

Your repayment is collected through PAYE. It’s deducted from your gross pay with your income tax. HMRC makes the calculations. You must inform your employer that you’re due to repay a student loan. Check and keep your payslips.

If you're self-employed

Repayments are collected through the tax self-assessment system. The Student Loans Company can't accept payments by credit card, so budget for your repayment. Set money aside as you do for tax, perhaps with a direct debit to a savings account.

If you're both employed and self-employed

You may have to make some loan repayments with your tax return for self-employment.

If you're going to leave the country for more than three months

You must inform the Student Loans Company. It'll arrange to collect student loan repayments directly from you. See more information further down this page.

What happens if your income changes during the year?

If you’re below the repayment threshold annual salary but go over the weekly or monthly income threshold, student loan repayments may still be taken. This could happen if you’ve been working overtime or received a bonus. If your income drops below the threshold, repayments stop automatically.

At the end of the financial year, if your overall annual income was below the income threshold, you can apply for a refund of these 'over' repayments. This won't happen automatically – you’ll need to contact the Student Loans Company.

Check your payslips, and keep them safe for future reference. You can't get a refund on any voluntary repayments.

What else should you check payslips for?

Sometimes, in error, repayments have been taken before students are due to start paying their loan back. Remember you aren't meant to pay anything until the April after you graduate. You can reclaim these over-repayments by contacting the Student Loans Company.

If your salary goes above the repayment threshold, and your payslips don't show any sign of contributions being made, ensure your employer knows you’re meant to be repaying a student loan – otherwise you may be liable for a fine.

The Student Loans Company will send you an annual statement of how much you've repaid in the tax year. You can find out how much you’ve paid by logging on to your student loan account.

How does student loan interest work?

Interest is charged on your student loan to reflect the cost of living. The measure used for this is the Retail Price Index. It means in real terms, you're paying back a similar amount to that borrowed. Interest is charged from the first date you get your loan until it’s fully repaid, or the loan's cancelled.

How the interest is worked out depends on what Plan type you're on: Plan 1 or Plan 2. If you have student finance from Northern Ireland or Scotland (Plan 1), your interest is linked to RPI or the Bank of England interest rate plus 1%, whichever is lower.

For Plan 2, it's a bit more complicated as it also depends on your income. The paragraph below outlines the repayment thresholds that have been used from April 2020.

If you have student finance from England or Wales after 2012 (Plan 2) while you’re studying – or if you don't keep your details up to date later – the interest is set at RPI plus 3%. Once you finish or leave your course, the rate of interest depends on your income. If you’re earning up to £26,575, interest is the same as the RPI. Above £26,575, an additional amount of interest is added to the RPI, capped for incomes over £47,835 at RPI plus 3%.

What are the current interest rates for student loans?

You can check interest rates for your Plan on GOV.UK.

Plan 1: Interest rates are currently 1.1%. There's no set date for Plan 1 interest updates.

Plan 2: Interest rates are updated each September in line with the Retail Price Index from March of that year. In September 2019 the RPI was 2.4%, meaning Plan 2 students accrue interest at a rate of up to 5.4%, depending on income.

So, your loan gains interest, but in equivalent terms it’s the same value as when you took out the loan, unless the interest rate is higher than the RPI. More importantly, what you repay is linked to what you earn, not how much you owe.

HMRC stamped envelope with money and calculator

Student loan cancellation

You may wonder how you’re going to pay off your student loan, particularly when you get a statement through from the Student Loans Company.

The truth is, only high earners are likely to actually pay the loan off. The balance of the student loan is cancelled after a certain time. This means student loan cancellation is likely for the majority of students – as long as you’ve kept up with any repayments due.

Also, having a student loan doesn't appear on your credit record (the information that banks and other lenders use to decide whether you can get credit from them). If you later apply for a mortgage or credit card, you may be asked whether you have a student loan, but this'll be to assess your income and what you need to spend money on.

How long do you have to wait until your student loan's cancelled?

If you have student finance from Northern Ireland (Plan 1), loan cancellation comes after 25 years.

In Scotland (Plan 1), student loan cancellation comes after 30 years.

If you have student finance from England and Wales, Plan 2 loans will be cancelled after 30 years.

In addition, Welsh students are able to apply for a single, partial cancellation of £1,500 off the balance of their maintenance loan. This is subject to the ongoing agreement of the National Assembly of Wales.

The loan will also be cancelled if you become disabled and permanently unable to work, or if you die.

Why might you have to repay some money sooner?

While you’re studying, some changes may result in an overpayment – for example, if your household income increases or you leave your course. Loan overpayments are treated separately from the main student loan. You'll need to pay back any overpayments earlier. To avoid this happening, it’s important you contact your university or college and inform your student finance body (Student Finance England or Wales, Student Finance NI or SAAS).

You can contact the Student Loans Company about overpayments. See relevant information on the GOV.UK.

You're responsible for updating the Student Loans Company about any changes to your details. This includes your contact details, bank account and details about your course. Also let them know if you plan to leave the country, or change from being employed to self-employed.

If you drop out of university

University isn’t for everyone, and it’s okay if you feel that dropping out is your best option.

If you’re from England, Wales or Northern Ireland, your student finance payments will stop after your university has confirmed to the Student Loans Company of your withdrawal. In Scotland, you should contact SAAS directly.

Speak with your university about your withdrawal, as it'll be able to support you during this time. Also, make sure to keep your family and friends informed.

Repaying your loan after dropping out

As both your tuition fee and maintenance loan payments are made through instalments over the year, you’ll have to pay back whatever you've already borrowed plus interest. You’ll be charged for a full term even if you leave part-way through.

The Student Loans Company will assess your situation and be in touch to help you organise an affordable repayment plan. It may ask for a portion of money back from your most recent maintenance loan as you’re only entitled to this during the time you’re enrolled. But you won’t have to start repaying the rest of your loan until the following April, and when you earn over the repayment threshold (see above).

If you’ve received a grant or bursary on top of your loan, you generally don’t have to pay this back and are entitled to it while you’re enrolled at the university. If you’re getting a grant or bursary from an external source, you’ll have to let them know of any changes yourself.

Payment extensions after dropping out

You can ask for funding extensions from the Student Loans Company through your university, to help with issues such as ill health or pregnancy. You’ll have to provide evidence to support this.

Returning to university

If you decide to return to university at a later date, you may not be entitled to the same amount of funding. However, if you dropped out of university in the first instance for a personal reason such as illness or bereavement, you’ll probably still be eligible for full funding for a new degree.

If you move abroad

If you move overseas temporarily or permanently, you’ll still have to pay off your student loan. You pay it back similarly to how you would if you were in the UK: paying 9% of your earnings when you reach a certain salary.

However, the threshold may be different depending on the economic strength of the country you’re living in. In more expensive countries, you’ll need to earn more to start paying your student loan back. In countries where the cost of living is lower, the threshold is lower.

If you live abroad for five years, you still have to repay your student loan. It'll only be written off in the same way as if you were living in the UK (see above).

When moving abroad, you have to:

  • Let the Student Loans Company know before you leave and keep them informed of your situation
  • Fill in the Overseas Income Assessment Form with information of your move and evidence of current employment
  • Have a UK bank account to set up a direct debit for the Student Loans Company – this may be tricky if you’re living and earning overseas, but just make sure you have a steady flow of money going into that account each month

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