Millions of former students may have more in their pay packets this month, thanks to a student loans threshold change. At the same time, nearly half a million university leavers will start repaying their loans for the first time.
10 April 2018
The Student Loans Company, the organisation responsible for administration and collection of repayments for student finance from over 4.4 million customers, explains the changes and nine things you should know about repaying your student loan.
1. When you repay...and when you don’t
The annual threshold for Plan 1 is increasing from £17,775 to £18,330 and for Plan 2 customers the threshold is increasing from £21,000 to £25,000. If you are not earning above the relevant threshold, you will not have any repayments to make.
The threshold rate varies depending on which repayment plan you are on. Scottish and Northern Irish students are on Plan 1. English and Welsh students who took out loans before 1 September 2012 are on Plan 1 and students who took out loans on or after 1 September 2012 are on Plan 2.
You can visit studentloanrepayment.co.uk and answer a few simple questions to figure out which loan Plan you have.
2. What do you pay
You repay 9% of what you earn above the relevant threshold. For example, if you are a Plan 2 customer earning £30,000 you would repay £37 per month in student loan repayments. Under the previous £21,000 threshold, you would have repaid £67 per month so you are saving £30 per month due to the threshold changes.
You can log in to your account and use the Balance Calculator to work out how much you have to pay.
3. First time repaying
First time repayers this year will typically be anyone who started a three-year university course in 2014 or those who dropped out of a course during the 2016/17 academic year.
The good news is that if you are due to repay for the first time, you may not have to do anything.
Your employer will take repayments from your salary during any period where your earnings (before tax) are over the weekly or monthly threshold – for Plan 2 customers that will now be £480 per week and £2,083 per month. But, if you are self employed, student loan deductions will need to be included in self-assessment tax returns.
4. Interest rates
Interest rates are set by the Government and revised annually and you are charged interest from the day you receive your first loan instalment until the loan is repaid in full.
So, if you are a Plan 2 customer who is due to start repaying your loan, the interest on your loan will now depend on your income. RPI (3.1%) where income is £25,000 or less, rising on a sliding scale up to RPI plus 3% (6.1%) where income is £45,000 or more. While studying and until the April after leaving your course, the interest rate applied is RPI plus 3%.
5. Keep track of payments
SLC advises you to monitor your repayments and keep a record of how much you are repaying on your student loan. Repayment deductions from your salary will be shown on your pay slips or your P60 - keep these documents as SLC will only receive details of your repayments after the end of each tax year.
Remember, you will pay more when you earn more, for example if on any month you earn a bonus, and similarly you will pay less when you earn less. If you earn under the threshold in one month, no deduction will be made that month.
6. Switch to direct debit in the last two years
At present, HM Revenue & Customs notifies SLC once a year, after the end of the tax year, of how much you have paid towards your student loan through the tax system.
This means that SLC can only know your outstanding balance on an annual basis, rather than monthly, so you should take up their direct debit option in the last two years of repayment to avoid over repaying your loan.
7. Keep in touch
The Student Loans Company sends you important correspondence relating to your student loan, including statements detailing how much you have repaid in the tax year. You must keep your contact details up to date, especially if you move house. You can provide us with email address and address updates by logging into your online account.
8. Moving abroad
You need to complete an Overseas Income Assessment Form if you are planning to be abroad for more than three months. You can be charged additional penalties on your student loan if you fail to meet your obligation to make your repayments from abroad. When you are living overseas, you will repay 9% of your earnings over the repayment threshold for the country you live in.
For example, the repayment threshold if you’re living in Australia is £21,995 for Plan 1 customers and £30,000 for Plan 2 customers.
9. When loans are written off
Student loans will be written off if you don’t repay them within a certain amount of time, as long as you are not in arrears. The timescales for the write off varies depending on which country provided the loan.
For example, if you live in England and took out a student loan on or after 1 September 2012, then it will be cancelled 30 years after you become eligible to repay.
SLC has dedicated social media sites for student loan repayment: www.facebook.com/SLCRepayment and www.twitter.com/SLC_Repayment as well as a wealth of information and guidance about student loan repayment available www.studentloanrepayment.co.uk. You can also watch SLC’s repayment videos at Youtube.