Student loan repayments
Once you graduate and start working and earning enough, student loan repayments also begin. Find out when you have to repay your loan and how much your monthly payments might be.
- Repayments after you graduate
- Types of student loan
- How student loan repayment works
- When you have to pay back your student loan
- Repaying your student loan more quickly
- When your student loan may be written off
- Budget now for your student loan repayments
Repayments after you graduate
It’s great when you graduate and get out into the real world with a degree under your belt. You look forward to pursuing your career goals, finding and starting work and moving on to the next stage in your life.
It’s also time to start thinking seriously about setting and sticking to a new monthly budget to reflect your new income and outgoings.
Once you start earning over a certain amount, one deduction from your salary you’ll have to consider will be student loan repayments. These are repaid automatically through the tax system, and stop once you’ve paid off your student loans.
Whether you’re self-employed, working for someone else or overseas, you need to understand exactly what’s involved in student loan repayment and how to manage your budget to reflect these deductions.
Types of student loan
There are two main types of student loans: Income Contingent Loans and Mortgage Style Loans (also known as a Fixed Term Loan).
If you started studying on or after September 1998, you have an Income Contingent Loan. This type of loan does not involve flat monthly payments, but is paid back through the tax system, in a way which is adjusted to your income.
Income Contingent Loans have two types of repayment plan: Plan 1 and Plan 2. Plan 2 applies if you are studying in England and Wales and started your studies on or after 1 September 2012. Plan 1 repayments apply wherever you studied in the UK. Scroll down for more information on each repayment plan.
If you started studying before September 1998, you will have a Mortgage Style Loan. You will be expected to pay this off in monthly instalments by Direct Debit.
If you have four loans or fewer, you will repay them over 60 monthly instalments. If you have five loans or more, you will repay them over 84 monthly instalments. However, if your income is low, you may be eligible to defer the payments for a year at a time.
The amount you have to pay each month is calculated by taking the total amount of the loan (plus interest based on the rate of inflation) and dividing it by the number of months you have to pay.
How student loan repayment works
Once you start work, you will start repaying your student loans through the tax system.
The Student Loans Company uses your National Insurance number to keep track of the money. They will tell HM Revenue & Customs to notify your employer when you start work and payments will be automatically deducted from your taxable earnings.
When the loan is paid off, HMRC notifies your employer and the repayments stop. If any payments slip through before your employer takes action, you will be refunded.
If you are self-employed, HMRC will calculate what you owe each year when you file your tax return. Just make sure you tick the box on your tax return which says you have a student loan.
If you will be overseas for three months or more, and once your repayments have started, you should complete an Overseas Income Assessment Form to determine how much you need to repay while abroad.
When you have to pay back your student loan
The earliest you will have to start repaying your student loan is the 6 April after you leave university or college. Repayments only kick in once you begin to earn above a certain salary. You may have Plan 1 and Plan 2 repayments to make from April 2016 depending on when you started your studies.
Plan 1 – repayments start when your income is over £17,495 a year (or £1,457 a month or £336 a week).
What you have to pay
The amount you have to pay is calculated as 9% of your taxable earnings (so long as your income is sufficiently high to have triggered repayment). Bear in mind, though, that if you also earn £2,000 or more in interest from shares or savings, this may affect what you have to pay.
Plan 1: Example student loan payments
|Annual income (before tax)||Monthly income||Monthly repayment|
|Up to £17,495||£1,457||None|
Your repayments may vary depending on how much exactly you are paid in a month. If your income in a certain month falls below the starting level, your employer will not make a deduction for that month.
Plan 2: Example student loan payments
|Annual income (before tax)||Monthly income||Monthly repayment|
|Up to £21,000||£1,750||None|
As with plan 1, your repayments vary depending on how much you are paid in a month. If your income falls below the starting threshold your employer will not make a deduction that month.
Repaying your student loan more quickly
You have the right to pay off your student loan more quickly by making at any time single payments of £5 or more directly to the Student Loans Company.
You can do this even if your salary does not 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 may 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 your student loan may be written off
Wherever you studied in the UK, if you started your studies before 1 September 2006, any balance remaining when you reach age 65 is written off.
If you started your course on or after 1 September 2006 and have a Plan 1 loan, any balance of your loan is usually written off after 25 years. The exception is Scotland, where the period before the loan is written off is 35 years.
If you have a Plan 2 loan, any outstanding balance is usually written off after 30 years.
Your loan is cancelled if you become permanently disabled or you die.
Budget now for your student loan repayments
Be prepared for when you have to start making student loan repayments. It’s never too soon to start budgeting for them.