Once you graduate and start earning over a certain amount, your student loan repayments will begin. Here’s how your monthly repayments are calculated and made.
Student loan repayment thresholds
If you began your course after 1 September 2012 in England or Wales, you’ll have a Plan 2 loan. You’ll begin paying off your student loan when you earn over £21,000.
If your course started before 1 September 2012, or you have a loan from the student finance agencies in Northern Ireland or Scotland, you’ll have a Plan 1 loan that you’ll pay back when you earn over £17,775.
Repayments after you graduate
Repayments are made automatically through the tax system and stop once you’ve paid off your student loan in full.
You’ll repay your loan whether you’re:
- An employee.
It’s important to understand exactly what’s involved in student loan repayments so you can manage your monthly budget properly.
Types of student loan
There are two types of student loans available: Income Contingent Loans and Mortgage Style Loans (also known as a Fixed Term Loan).
Income Contingent Loans:
- If you started studying on or after September 1998, you have an Income Contingent Loan.
- This type of loan doesn’t involve flat monthly payments but is paid back through the tax system in adjustable amounts depending on your income.
Income Contingent Loans have two types of repayment plan:
Student loan Plan 1 - These apply wherever you studied in the UK, unless you have a Plan 2 loan.
Student loan Plan 2 - You’ll have a Plan 2 loan if you’re studying in England or Wales and started your studies on or after 1 September 2012.
Mortgage Style Loans:
- If you started studying before September 1998, you’ll have a Mortgage Style Loan.
When do student loan repayments start?
The earliest you’ll have to start repaying your student loan is 6 April, the year after you graduate from university or college.
Repayments only start once you’ve started earning above a certain salary. This depends on which loan you have.
Plan 1 loans will start being repaid once you earn over £17,775 a year.
Plan 2 loan repayments start once you earn over £21,000 a year.
You might have both Plan 1 and Plan 2 repayments to make, depending on when you started your studies.
How the Student Loans Company knows how much you’re earning
The Student Loans Company uses your National Insurance number to keep track of your income.
They’ll instruct HM Revenue & Customs (HMRC) to notify your employer when you start working, and payments will be deducted from your taxable earnings.
If your income falls below the starting threshold within a certain month, there won’t be a repayment deduction made for that month.
Once the loan is paid off in full, HMRC notifies your employer and the repayments stop.
However, if any payments slip through before your employer takes action, you’ll be refunded.
You should keep track of monthly deductions and contact the Student Loans Company if overpayments happen.
If you’re self employed
If you’re self-employed, HMRC will calculate what you owe each year in repayments, once you file your tax return.
Just make sure that you tick the box on your tax return which states that you currently have a student loan.
If you’ll be overseas
If you’ll be overseas for three months or more and your repayments have already started, you need to submit an Overseas Income Assessment Form which will work out how much you need to repay while abroad.
What you have to repay
The amount you pay back is 9% of the income you earn over the repayment thresholds:
- £17,775 for Plan 1
- £21,000 for Plan 2
Interest is added to your loan from the date of your first loan payment.
For example, earning £25,000 a year would mean you’re being paid £7,225 over the threshold. 9% of £7,225 is £650.25 a year, or £54 per month.
Interest on Plan 1 student loans
Interest rates change every year and are currently 1.25%. You can see previous years’ interest rates on the Student Loan Repayment website.
Under Plan 2, earning £23,000 a year means you have £4,000 over the threshold. 9% of £4,000 is £360 a year, or £30 each month.
Interest on Plan 2 student loans
When you’re still studying, the interest for your loan is the UK Retail Price Index (RPI), which is currently 1.6%, plus 3%.
When you graduate, the rate changes depending on how much you earn.
£21,000 or less, RPI (1.6%)
£21,000-£41,000, RPI + up to 3%, depending on your exact income
£41,000+, RPI + 3% (4.6%)
When you have a Plan 1 and a Plan 2 loan
You’ll begin paying back your Plan 1 loan when you earn over £17,775.
You’ll pay back both your Plan 1 and Plan 2 loans when you earn £21,000.
The amount you repay will be 9% of the amount you earn that’s above the repayment threshold.
Repaying your student loan more quickly
You have the right to pay off your student loan more quickly by making single payments of £5 or more directly to the Student Loans Company whenever you want to.
You can do this even if your salary doesn’t yet reach the starting level for repayments.
You also have the right to pay off your outstanding student loan in full at any time.
If you do make voluntary repayments, this will not prevent your employer from making the usual student loan deductions from your pay. But it does mean that repayments will stop sooner.
Before making extra payments, you should consider first of all if you can make better use of this money to meet your budgeting needs now.
Welsh loan cancellation
If you took out a maintenance loan from Student Finance Wales under Plan 1 in academic years 2010/11, 2011/12, 2012/13 and 2013/14 or under Plan 2 on or after academic year 2012/13, the Welsh Government might provide you with a partial cancellation of up to £1,500.
The reduction will be applied to the balance of your student loan by the Student Loans Company when you start repayments.
When will my student loan be written off?
Exactly when loans are cancelled varies depending on the loan you have and where you studied.
Plan 2 loans, which you’ll have if you studied in England or Wales and started your course on or after 1 September 2012, are normally written off 30 years after you started repaying it.
The expiry of Plan 1 loans and Mortgage Style Loans varies a lot more.
Your loan is written off if you become permanently disabled or die.
If you can prove that you’re permanently unfit for work, then the Student Loan Company will also write off your student loan. The Student Loans Repayment site has the full details on how to prove this.
Budget now to manage your student loan repayments
Whether you’re due to start university or preparing to graduate in the near future, the moment will come when you’ll start to make student loan repayments.