Student loan repayments – what you need to know
Once you graduate and start working, if you earn above a certain level you’ll need to think about repaying your student loan.
The earliest you have to start repaying your student loan is the 6th April after you leave university or college. So, for example, if you graduated in 2014, your repayments started on 6th April 2015. There are also earning thresholds which you must reach before you have to start repayments – these are explained in more detail below.
If you are confused about how the payments are deducted and want to know more about when and how payments are made, read on for some help from the Money Advice Service.
How do student loan repayments work?
How your student loans are repaid depends on when you started studying.
If you began studying before September 1998, you will have a Mortgage Style Loan, also known as a Fixed Term Loan and will be expected to pay this off in monthly instalments by Direct Debit.
If you began studying in or after September 1998, you will have an Income Contingent Loan, which does not involve flat monthly payments but is paid back through the tax system, in a way which is adjusted to your income.
There are two types of repayment plan for Income Contingent Loans – 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. Otherwise Plan 1 repayments apply, wherever you studied in the UK.
So, how is an Income Contingent Loan paid off?
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. It 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.
How much do I have to pay back and when?
The amount you have to pay is calculated as 9% of your taxable earnings.
However, you need to be earning a certain amount to trigger the repayments.
For Plan 1 student loans (so if you started your studies before 1st September 2012), repayments start when your income is £16,910 a year (or £1,409 a month or £325 a week).
For Plan 2 student loans, repayments start when your income is £21,000 a year (or £1,750 a month or £404 a week).
Can I repay my student loan any faster?
You have the right to pay off your student loan more quickly. You do this by making single payments of £5 or more directly to the Student Loans Company, at any time. You can do this even if your salary does not yet reach the starting level for repayments.
You can also pay off your outstanding student loan in full at any time.
If you do make voluntary repayments, bear in mind your employer can still make the usual student loan deductions from your pay. But it does mean repayments will stop sooner.
Are there any circumstances in which my loan will be written off?
Wherever you studied in the UK, if you started your studies before 1st September 2006, any balance remaining when you reach age 65 is written off.
If you started your course on or after 1st 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.
Take a look at more advice from the Money Advice Service on repaying your student loans for more information.