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Financing your studies

Repaying your student loan

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

Young man on laptop looking into student loan repayment

CONTENTS

  1. How undergraduate student loan repayments work

  2. When do I start paying back my student loan?

  3. How much do I have to repay?

  4. Are student loans interest free?

  5. Student loan cancellation

  6. Why might you have to repay some money sooner?

  7. What if you want to repay the loan sooner?

  8. If you drop out of university

  9. If you move abroad

How undergraduate student loan repayments work

Unlike a commercial loan, student loan repayments are based on your income, not how much you borrowed. At the end of your undergraduate degree, it may look like a worrying amount of debt – but:

  • You only start repayments once your income is above a set threshold
  • You only pay back 9% of your income above that amount

When you take out a UK student loan, you deal with the student finance body for the nation where you originally live: England, Wales, Northern Ireland or Scotland. After that, all loans are managed by the Student Loans Company.

What plan are you on?

Once you leave uni, you’ll need to remember what plan you’re on as this determines how your repayments work. 

The UK currently has four plans that apply if you’re about to start an undergraduate course. Each plan has its own repayment threshold and interest rates.

Plan name UK nation issuing the loan
Plan 1 Northern Ireland
Plan 2 Wales
Plan 4 Scotland
Plan 5 England

Plan 5 is a new plan for undergraduates from England starting uni from August 2023. Before then, England and Wales had the same plan – however, in May 2023 the Welsh Government confirmed that their students will remain on Plan 2.

In case you wonder, Plan 3 applies if you get a postgraduate loan from England or Wales. If you’re from Northern Ireland or Scotland and study a postgraduate course, your repayments will be under Plan 1 or Plan 4.

When do I start paying back my student loan?

You become eligible to start repayments from the April after you finish or leave your course, or four years after it began if you’re studying part-time. Whether you have to pay anything or not will then depend on your income.

Each plan has a minimum 'repayment threshold' that determines whether you are required to start making payments. They are set by the government and are based on your income before tax and other deductions.

Plan UK nation issuing the loan Annual income threshold Monthly income Weekly income
Plan 1 Northern Ireland £22,015 £1,834 £423
Plan 2 Wales (or England before 1 August 2023) £27,295 £2,274 £524
Plan 4 Scotland £27,660 £2,305 £532
Plan 5 England (after 1 August 2023) £25,000 £2,083 £480

These thresholds can change each April. Plan 5 threshold applies from April 2026, with no repayments required before that date. From April 2024, Plan 1 threshold will be £24,990.

How much do I have to repay?

Whichever undergraduate plan you're on, if you’re above the repayment threshold, you pay 9% of your income.

For employees, your income isn’t just your wages. It could include some other payments from your employer. The rule of thumb is whether your employer has to pay Class 1 National Insurance Contributions (NICs) for anything other than your salary.

Employer payments that count as earnings include:

  • Your normal wages
  • Overtime, bonuses or even tips, if they’re paid through your employer
  • Cash or vouchers given to you by your employer for meals, goods, transport or even as Christmas gifts
  • If you’re off work, pay for sick leave or maternity leave

Income that’s not defined as earnings may include:

  • Any tips you get directly, i.e. not via your employer
  • Money to compensate you for work-related injuries
  • Redundancy payments
  • Pension payments you receive

Company cars may affect your income. If the company car is available for your private use, it’s liable for employer NICs. If it’s strictly for business or work-related use, it’s not. If you take a cash allowance instead of a car, that goes into your income.

Tax rules regarding pay are complex. In practice you may not know how the details work out until you're able to check your payslip to see what counts as your total income.

Your income may also include ‘unearned’ income. This might be from property you rent out, investments, pensions or savings, if applicable. You can exclude unearned income generated by these sources if it’s below £2,000.

What happens if your income changes during the year?

If you are self-employed, you’ll work out your income on an annual basis when you submit your tax return.

However most employees are paid monthly or weekly, which means you may sometimes end up making a repayment even if your annual income isn’t above the repayment threshold.

This is because those who are paid weekly or monthly have their pay assessed against a weekly or monthly repayment threshold. If you get an overtime payment or bonus – for example if you do extra shifts at Christmas – you may go over this threshold, triggering a student loan repayment. If your income drops back to normal, repayments stop automatically.

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

How are student loan repayments made?

If you're employed in the UK

Your repayment is collected through the PAYE (Pay As You Earn) system. It’s deducted from your net 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 or need to complete a Self-Assessment tax return

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 or complete a Self-Assessment tax return

You may have to make some repayments with your Self-Assessment tax return.

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 the repayments directly from you. There’s more information on this further down this page.

Check your payslips!

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 unless you’re studying part-time. 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.

You’ll be sent an annual statement showing how much you've repaid in each tax year. You can also find out how much you’ve paid by logging on to your student loan account.

Are student loans interest free?

The short answer is No – but in most cases the interest is used to keep the value of the loan the same as when you borrowed it. The exception to this is if you have a Plan 2 loan, where a higher income may mean you pay a higher interest rate.

The measure used is the Retail Price Index (RPI), which looks at how much the price of typical goods and services have risen over a period of time. It means in real terms, most will pay back a similar amount to that borrowed.

How interest works for each plan

Interest is charged from the first date you get your loan until it’s fully repaid or cancelled. The amount you actually pay is based only on your income. Instead, the interest may affect how long it takes to pay the balance off.

Plan UK nation issuing the loan Loan interest is determined by…
Plan 1 Northern Ireland RPI or the Bank of England 'base rate' + 1% (whichever is lower)
Plan 2 Wales (or England before 1 August 2023) RPI and your income
Plan 4 Scotland RPI or the Bank of England 'base rate' + 1% (whichever is lower)
Plan 5 England (after 1 August 2023) RPI

What are the current interest rates for student loans?

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

Plan 1

There's no set date for Plan 1 interest updates. After many years at a low rate, Plan 1 interest has increased steadily in recent months. If the Bank of England reduces its interest rates, they are likely to drop again.

Plan 2

Interest rates are updated each September and apply until the following August, normally in line with the Retail Price Index from the previous March. During your course, interest is normally RPI plus 3%. After you finish, it depends on your income:

Your annual income Plan 2 loan interest rate
£27,295 or less RPI
£27,296 to £49,130 RPI plus up to 3%
Over £49,130 RPI plus 3%

If your income is between the lower and upper threshold, interest is usually on a sliding scale between RPI and RPI plus 3%. While the RPI keeps the loan at the same value in equivalent terms, if you earn more, you’ll be subject to a higher rate of interest. You also get charged the highest rate of interest if you’ve lost touch with the Student Loans Company, no matter what your income is.

However, there may also be short-term caps on the interest rate, depending on the market rates for personal loans. After the RPI increased to 9% in March 2022, the government announced a cap of 7.3% – although for most of the time it’s been lower.

This applies that no matter what your income is and is in place until the end of November 2023.

Plan 4

Interest rates may be confirmed in September (if based on the RPI) or change ad hoc (if based on the bank base rate).

Plan 5

Interest rates are based on RPI but won’t exceed the rate used by commercial loans.

HMRC stamped envelope with money and calculator

Student loan cancellation

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

In most cases, it’s only high earners who are likely to repay their loan. This is because the balance is cancelled after a certain time, meaning that student loan cancellation will be the outcome for many – as long as you’ve kept up with any repayments due. Students starting the new Plan 5 repayments will probably pay off more of their loan than students under the other repayment plans.

Martin Lewis (the Money Saving Expert) suggests it’s best to view the student loan as a tax for having studied a higher education qualification.

Although your student loan balance may be high, it won’t affect 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 is cancelled?

If you’re not likely to repay your entire student loan, how long must you wait until the balance is written off? Again the answer depends on which plan you are on – with good news if you’re on Plan 1 from Northern Ireland, less so if you’re starting the new Plan 5 loan.

Plan UK nation issuing the loan Years until your loan's cancelled
Plan 1 Northern Ireland 25 years
Plan 2 Wales (or England before 1 August 2023) 30 years
Plan 4 Scotland 30 years
Plan 5 England (after 1 August 2023) 40 years

In addition, Welsh students may be 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 Welsh Government.

In all cases, your student loan will be cancelled if you become permanently disabled and unfit for 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 made to you 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 update your student finance body as soon as possible about any changes (Student Finance England or Wales, Student Finance NI or SAAS).

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

What if you want to repay the loan sooner?

Many borrowers are unlikely to pay off their student loan before the cancellation date. However some who are high earners, and who get a higher rate of interest, may wish to make voluntary repayments towards their debt to clear it sooner.

You must weigh up very carefully whether you're likely to repay the loan (and therefore save interest being charged on it) or whether the debt will be cancelled (in which case any voluntary payments made will have been in vain).

You can't get a refund on any voluntary repayments you make.

It’s worth remembering that even with inflation, student loan interest is low compared to commercial loans. The advice given by Martin Lewis on Money Saving Expert is to focus on paying off other debts first. Or even, focus on building up your savings, to help you with other areas of your life such as buying a house.

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.

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.

If you leave your university course, you’ll need to contact your student finance body directly to let them know. You should be able to update them about your changed circumstances through your student finance account. Do it as soon as possible to avoid any further payments of your loan.

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 schedule.

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 – the rest will count as an overpayment. You have to pay back overpayments straight away, even if you’re not earning more than the normal repayment threshold. But you won’t have to start repaying the rest of your loan until the following April, and only when you earn more than the repayment threshold (see above).

If you’ve received a grant or bursary on top of your loan, you may also need to repay some of this if you leave part way through a term. 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 might 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 may 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 income.

However, the threshold may be different depending on the economic strength of the country you’re living in. In more expensive countries, the repayment threshold will be higher; in countries where the cost of living is lower, the threshold is lower.

Whether you live abroad for five years or twenty, you must still 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 must:

  • Let the Student Loans Company know before you leave the UK (including moving to the Republic of Ireland) for more than three months
  • Keep them updated about any changes
  • Update your employment details online or by completing an Overseas Income Assessment Form
  • Make repayments through your online student loans account

To make repayments you could set up direct debits via a UK bank account. 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. Alternatively you could pay by international bank transfer.

You can find minimum overseas repayment thresholds relating to your plan on GOV.UK.

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