Student loan repayments: Everything you need to know
Student loans have become something of a myth for most students, the fearmongering and false information are enough to put any student off. So here we have all the information you need!
All students will be required to pay their student loans back. Thankfully, paying them back is not as scary as you might think and is a lot more straightforward than you may have imagined.
Student loan repayments have recently changed. As of 2023, new terms are required for students and will have different payment thresholds.
How to repay
Your student finance repayments are taken out of your salary at the same time as tax and National Insurance contributions. You don’t need to make any payments of your own. You can see how much of your student loan you’ve paid off that month by checking your payslips.
If you’re self-employed, things work a little differently. His Majesty’s Revenue and Customs (HMRC) will look at your tax returns and calculate how much you need to pay. You will pay at the same time as your tax.
What if I leave the country?
You will still need to repay your loan. If you leave the UK for more than three months, you must contact the Student Loans Company (SLC) to find out if you need to repay and how much. You will not need to speak to Student Finance England or any other Finance companies.
Your repayment terms will change in another country. This may require you to make payments yourself, which can be done through an online bank transfer or by International Bank Transfer (IBAN).
When do I start paying back my student loan?
Generally, you will start repaying your student loan at the start of the tax year after you finish your course. However, you will need to earn a certain amount of money before you can start repaying them.
If your course ended in June 2023, your repayment will be in the following tax year, April 2024. These are then calculated alongside your tax and National Insurance.
How much do I repay?
This will depend on what payment threshold you fall into. Repayment thresholds usually change every year, so some may find that if their salary falls below the expected threshold almost a year after starting to pay them.
The amount you pay back will depend on which plan you are on. There are four undergraduate plans and a postgraduate loan amount which will dictate how much you pay back.
| Plan type | Max. annual income | Max. monthly income | Max. weekly income |
|---|---|---|---|
| Plan 1 | £22,015 | £1,834 | £423 |
| Plan 2 | £27,295 | £2,274 | £524 |
| Plan 4 | £27,660 | £2,305 | £532 |
| Plan 5 | £25,000 | £2,083 | £480 |
| Postgraduate loan | £21,000 | £1,750 | £403 |
Source: Gov.uk
The actual monthly payments, from the 6th of April 2023 to the 5th of April 2024 are broken down here:
| Annual salary | Plan 1 | Plan 2 | Plan 4 | Plan 5 |
|---|---|---|---|---|
| £21,000 | £0 | £0 | £0 | £0 |
| £22,015 | £0 | £0 | £0 | £0 |
| £25,000 | £22 | £0 | £0 | £0 |
| £27,295 | N/A | £0 | £0 | £0 |
| £27,660 | N/A | N/A | £0 | £0 |
| £30,000 | £60 | £20 | £18 | £38 |
| £35,000 | £97 | £58 | £55 | £75 |
| £40,000 | £135 | £95 | £93 | £113 |
| £45,000 | £172 | £133 | £130 | £150 |
| £50,000 | £210 | £170 | £168 | £188 |
The repayments are easy to calculate. You will pay 9% of your total income if you are on Plans 1, 2, 4 or 5, while those on the Postgraduate Loan plan will pay 6%. You can also use a student loan repayment calculator to calculate other amounts.
What are the recent changes to student loan repayments?
Plan 5 is the newest change to student loan repayments in the UK. This plan is specifically for students who have started an undergraduate degree or an Advanced Learner Course on or after the 1st of August 2023. There is now a 40-year repayment term, rather than the previous 30-year term.
These loans are not repayable until April 2026, even if you leave your course early. The Government has calculated that anyone that falls into the 2026/27 tax year threshold of £25,000, will fall into Plan 5.
All in all, there are three main changes:
- Lower repayment threshold.
- 40-year repayment terms.
- Lower interest rates.
The rates of payback have seen a dramatic change. On Plans 1 through 4, students pay 56p in a £1, while the state pays 44p. On the current changes, students will need to pay 81p in a £1, with only 19p from the state, meaning graduates will now pay almost double in the new system.
What plan will I be on?
The repayment plan you are on will depend on when you studied your course. Tuition fees were introduced in the UK in 1998, so the timeline begins from there.
The repayment times are:
- Plan 1: From 1998 onwards.
- Plan 2: From 2012/2013 to 31st July 2023.
- Plan 2 (undergraduate loan from Wales): 2012 onwards.
- Plan 3: 2016 onwards.
- Plan 4: 1998 onwards.
- Plan 5: 1st August 2023 onwards.
Plan 3 does exist, but it is known more commonly as a Postgraduate Loan. Plan 3 is different compared to other plans as the plan does not have an annual increase to the threshold.
When does my student loan get written off?
This will depend on the student loan plan you are on. Some loans will depend on when you took the loan out, while others will depend on your age.
Student loan plans are written off under the current criteria:
| Plan type | Written off date(s). |
|---|---|
| Plan 1 |
|
| Plan 2 | Written off 30 years after the first April you were charged. |
| Plan 4 |
|
| Plan 5 | Written off 30 years after the first April you were charged. |
| Postgraduate Loan |
|
Source: Gov.uk
The SLC also cancels the student loan debts of anyone who dies. If you are next of kin, you must inform the SLC of their death and provide evidence, such as an original death certificate and the student’s Customer Reference Number (CRN).
If you claim disability benefits, your loan may be written off too. This will depend on the circumstances and you’ll need to provide the correct evidence, through a letter from the Benefits Agency and your CRN.
How much interest will I have to pay on my student loan?
The amount of interest you pay will depend on what plan you are on and how those plan’s rates are calculated. The current interest rate repayments are:
Plan 5’s interest rate is based on the Retail Price Index. You will only be charged one interest rate if you are on two different payment terms. Your employer or the SLC can tell you which rate it will be.
Do I have to pay tax on my student loan?
In the UK, student loans are considered non-taxable income and are therefore not taxed. Your student loan repayments are considered, in their own right, to be a tax; therefore, you would not need to pay tax on top of it.
This is also the same for those who are self-employed.
Should I pay off my student loan in full?
This depends on you and your circumstances. Unlike other large payments, like mortgages, there are no early repayment fees for paying your fee back ahead of time.
Paying student loans early is not always a good idea. The monthly repayment terms are usually unnoticeable; paying them off early can be more expensive than simply sticking to the repayment plan. You can make early contributions if you need to, and these, too, do not incur any early fees for having done so.
What if I don’t pay?
It is illegal not to pay back your student loan. The majority of student loans are rarely paid back in full. However, it is not an option to totally refuse to pay them back.
Student loans are set up as a contract. Therefore, refusing to pay back a contracted loan will result in prosecution, even if you don’t live in the UK anymore. You can contact the SLC for more information on how to avoid missing payments.
What if I overpay?
It is possible to receive a refund for a student loan. Student loans can be overpaid, and often students may end up with a rebate at the end of their payment term if they have unfortunately overpaid.
The common reasons for a refund are:
- You have paid more than you should have done.
- You have repaid more than you need to.
- You have started making repayments earlier than you should have.
- Your annual income is below the threshold.
- Your employer has you on the wrong repayment plan.
If you have paid more than you owe, then HMRC will inform your employer, and the payments will stop. This can take up to four weeks. You will either be contacted by the SLC or will simply be refunded the money to your bank account.
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