Once you leave study 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 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 £18,395 a year, £1,533 a month or £354 a week.
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 £25,725 a year, £2,144 a month or £495 a week.
Repayments after you leave study
Repayments are made automatically through the tax system. Payments will depend on the amount you earn over the threshold during any given pay period. By pay period we mean each time you receive your salary. This could be every week, fortnight, four weeks, or a calendar month. Payments will stop if you earn below the threshold for that pay period and once you’ve paid off your student loan in full. It is important to note that if, for example, you are paid on a monthly basis and earn over the repayment threshold for that month, perhaps due to a bonus or overtime, a deduction will be made from your salary.
If by the end of the year you have earned under the yearly repayment threshold, you can call SLC to ask for a refund. However, if you have earned over the yearly repayment threshold, no fund will be due.
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 different types of student loans: 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 variable 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 leave study from university or college.
Read more about when you should start repaying your loan on GOV.UK
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 the annual threshold of £18,395 a year, £1,533 a month or £354 a week.
Plan 2 loan repayments start once you earn over the annual threshold of £25,725 a year, £2,144 a month or £495 a week.
You might have both Plan 1 and Plan 2 repayments to make, depending on when you started your studies. Read more about this on the Student Loans Company site.
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 pay period, there won’t be a repayment deduction made for that pay period. By pay period we mean each time you receive your salary. This could be every week, fortnight, four weeks, or a calendar month.
Once the loan is paid off in full, HMRC notifies your employer and the repayments will stop.
However, if any payments slip through before your employer takes action, you’ll be refunded.
You should keep track of salary deductions and contact the Student Loans Company if you think you have paid back too much.
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:
- £18,395 a year, £1,533 a month or £354 a week for Plan 1
- £25,725 a year, £2,144 a month or £495 a week for Plan 2.
Interest is added to your loan from the date of your first loan payment.
For example, earning £27,000 a year would mean you’re being paid £8,605 over the threshold. 9% of £8,605 is £774.45 a year, or £64.53 per month.
Interest on Plan 1 student loans
The interest rate is set on 1 September each year, although it can change during the year too. Currently the interest rate on Plan 1 loans is 1.75%
Under Plan 2, you’ll repay 9% of your income over the equivalent pay period earnings threshold. So, if you earned £2,250 per month (or £27,000 per year), they would repay £9.54 per month (that is 9% of the £106 that is ABOVE the monthly threshold of £2,144).
If you earned £2,500 a month (or £30,000 a year), you’d repay 9% of the £456 above the relevant monthly pay period threshold (just over £32 a month).
We’ve assumed that you are paid in 12 equal monthly payments in the above examples.
Interest on Plan 2 student loans
When you’re studying, the interest on your loan is the UK Retail Price Index (RPI) plus 3%. After you leave your course, the rate depends on how much you earn and varies between RPI for those earning £25,725 or less to RPI plus 3% for those earning over £46,305.
When you have a Plan 1 and a Plan 2 loan
You’ll begin paying back your Plan 1 loan when you earn over the annual threshold of £18,395 and below £25,725 a year.
You’ll pay back both towards both your Plan 1 and Plan 2 loans when you earn £25,725 or over.
The amount you repay will be 9% of the amount you earn that’s above the repayment threshold for the relevant pay period. By pay period we mean each time you receive your salary. This could be every week, four weeks, a calendar month.
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 1 loans and Mortgage Style Loans varies a lot more in terms on when they are written off. Find out what would apply in your circumstances.
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.
Visit the Student Loan Repayment website to read more about when Plan 2 loans are written off.
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 Loans Company will also write off your student loan. The Student Loans Repayment site has the full details on how to prove this.
Read more about when other student loans are written off on the Student Loan Repayment site.
Budget now to manage your student loan repayments
Whether you’re due to start university or preparing to complete your studies in the near future, the moment will come when you’ll start to make student loan repayments.