My son will start university this autumn, and I’ve already begun thinking about how he will pay back his student loan.
There are many others who will finish their degrees this year and may also wonder how and when they will start to pay back theirs.
Repayment of your student loan
If you are employed, your employer will make deductions from your salary which are paid against your student loan.
If you are self-employed, your repayments will be added to your annual tax liability and paid when your self-assessment tax liabilities are due.
If you wish to make additional repayments against your loan, this can be done directly through your online repayment account.
It is not always beneficial to repay the loan in full and you may want to discuss this with an accountant before doing so.
Types of student loan
There are many other conditions, but the general rules are as follows:
– If you started your undergraduate course before 01.09.2012, your student loan would fall under Plan 1 1 – If you started your undergraduate course after 01.09.2012, your student loan would fall under Plan 2 – A postgraduate loan is a third option.
– If you are a part-time student, there is a loan available to you as long as you are doing at least 25% of a full-time course each year.
When do you start to repay your student loan?
You must repay your student loan even if you do not finish the course.
The earliest you will start repaying is either the April after you leave your course, or the April four years after the course started (if studying part-time).
The repayment of your student loan is dependent on your income.
Plan 1 – this starts to be repaid once your income exceeds £19,895 gross per annum.
Plan 2 – this starts to be repaid once your income exceeds £27,295 gross per annum.
Postgraduate loan – this starts to be repaid once your income exceeds £21,000 gross per annum.
If your total income does not reach these thresholds, you will not need to start repaying your loan.
How much do you repay?
If you have a loan under Plan 1 or 2, you repay 9% of the amount you earn over the threshold.
For plans under the postgraduate loan, you repay 6% of the amount you earn over the threshold.
Interest on the loan
Interest on the loan begins the day the first payment is made to you or your college, and is charged on a monthly basis.
Plan 1 – interest is charged at either the Retail Price Index or the Bank of England base rate plus 1% (whichever is lower).
Plan 2 – while studying, interest is charged at the Retail Price Index plus 3%. Once you have started to repay the loan, the interest charged is dependent on your income.
Postgraduate loan – interest is charged at the Retail Price Index plus 3%. This is currently a total of 5.6%.
Can the loan ever be written off?
Plan 1 – if you took out the loan before 2006, it is written off when you are 65.
Plan 1 – if you took out the loan in 2006/2007 or later, it is written off 25 years after the April you were first due to repay.
Plan 2 – it is written off 30 years after the April you were first due to repay the loan.
Postgraduate loan – this is written off 30 years after the April you were first due to repay the loan.
Please always seek professional advice before taking any action. We are happy to answer questions in future issues. Please send your questions through the Contact Us page on our website: www.champconsultants.co.uk
Chantal Baker, is the director and founder of Champ Consultants Ltd, an accountancy and tax consultancy practice in Caterham. Please do follow us on the various social media channels.
