Student loans are how most people in the UK can pay for their tuition and living costs whilst studying at University – if of course, the degree course is eligible for a student loan.
But the reality of the loan kicks in once you’ve finished your degree and embarked on your chosen career, and working out how to repay that loan can be a bit blur.
To put your mind at rest, a student loan does not affect your credit rating – the only good news in this piece.
Which plan are you on? There are 4 to choose from. Eyes down:
Anyone who started an undergraduate course before September 2012 in England or Wales.
For all students who started a course after 1998 in Scotland or Northern Ireland, and after 2012 in England & Wales.
Is a Scottish student loan and for those that graduated in 2020/2021 onwards, and to complicate matters further, the Scottish Government converted those still on a Scottish plan 1 to plan 4.
You think I have missed plan 3 – well officially there isn’t one named plan 3, but there is a Postgraduate Loans and Advanced Learner Loan repayments, which have different rules.
Told you it is a bit blurr.
The plan you’re on will dictate your repayment terms, including the threshold over which you start repaying your loan and the interest rate. The thresholds mainly change each year, but so far not the percentage. Plan 1, 2, 4 are 9%, Post Grad (PGL) is 6%.
The student loan repayments are income-contingent, meaning they are based on your income from all sources. Repayments start when your income is over the threshold for your loan type.
These repayments are typically deducted automatically from your salary if you’re an employee. If you’re self-employed, you’ll make repayments as part of your tax return. That dreaded bill just keeps going up in January.
You can opt to pay off your loan faster especially if interest rates are higher than the repayment interest required by making voluntary payments if you have money to spare and not going to cause you hardship as you won’t get it back if you need this.
Employers will still take the required amount each month from PAYE, but if you only have self-employment, you don’t have a way of entering this in your tax return.
You need to create a false employment page which is blank as the self-assessment system does not take into account voluntary payments by the self-employed. You will only put down payments made in the tax year that the return covers, not voluntary payments in the next tax year. The exception to this is if you fully paid off the loan in the current tax year, but the tax system requires you to make a payment (will take months to get it back), then tick the box that say no student loan and attached the confirmation letter that you are fully paid up.
In the UK, student loans are eventually written off if they haven’t been repaid. The write-off period depends on the loan plan and when you took out the loan, but for plan 2, 4 and Post Grad, it is 30 years after you become eligible to repay, plan 1 taken out after 2006/2007 25 years and when you turn 65 before that.
Extra fun fact 1: There is a student loan plan 5 coming out for people starting a degree course after 1st August 2023 – undergrad & post grad – watch this space!
It’s worth considering this fact when deciding whether to make extra payments on your loan. For some people, especially those on a lower income, it might make more financial sense to focus on other financial goals.
If you move abroad, you still have to repay the loan, but it will be directly with the Student Loan Company (SLC) and not through the UK tax system. You need to notify the SLC within 3 months of moving overseas. They may require evidence of your income overseas (Overseas Income Assessment) and request a direct debit be taken for the repayments. A little bit harder if you are self-employed overseas and have no fixed income.
The only other times the loan MAY get written off is if the person dies, or if a person cannot work due to illness or disability. only those on PIP, DLA, Industrial Injury Benefit and Severe disablement allowance can claim.