Student Loan Repayment : A Complete Overview

Taking a student loan is an affordable way to pay for your university or college fees. It can be taken by students belonging to any income group. 

A student loan helps to remove the stress and burden from timely payments to be made towards education. Moreover, student loan repayment is a very easy process in the United Kingdom, Wales, Scotland, and Northern Ireland. 

Generally, a student loan in the UK consists of tuition fees, maintenance costs, and postgraduate loans. However, it does not include any amount of bursaries or grants. Also, the repayment of a student loan will depend on the overall payment and type of course. 

Types of Student Loan Repayment Plans 

There are three different student loan repayment plans depending on the time and place it is taken. These have been explained in detail below. 

Repayment Plan 1 

A student pursuing an undergraduate degree will fall under Plan 1 if he fulfills one of the following criteria –

Student Nationality University or College Location Year when Loan was Taken
Scottish or Northern Irish Anywhere in the UK On or After 1st September 1998
English or Welsh Anywhere in the UK On or Before 1st September 2012
European Union Scotland or Northern Ireland On or After 1st September 1998
European Union England or Wales After 1st September 1998 but Before 1st September 2012

Repayment Plan 2 

A student pursuing an undergraduate degree belongs to Plan 2 if he has fulfilled any of the following criteria –

Student Nationality University or College Location Year when Loan was Taken
English or Welsh Anywhere in the UK On or After 1st September 2012
European Union England or Wales On or After 1st September 2012

Students who have taken an Advanced Learner Loan will fall under Plan 2 as well. However, this applies if he has taken the loan on or after 1st August 2013. 

Postgraduate Loan

Any student pursuing a postgraduate course will fall under this repayment plan. This includes the following criteria – 

Student Nationality Degree Year when Loan was Taken
English or Welsh Masters On or After 1st August 2016
English or Welsh Doctorate On or After 1st August 2018
European Union Any Post Graduate On or After 1st August 2016

When does Student Loan Repayment Start? 

Usually, student loan repayment starts at the beginning of April (1st), after your course is completed. This is if you’ve been studying full time. In the case of part-time studies, it will start 4 years after the course has started. 

Additionally, you have to start repaying only if your income is above the minimum threshold under your respective plan. This amount changes on the 6th of April every year. Currently, the minimum thresholds are – 

Repayment Plan Weekly Income Monthly Income Annual Income
Plan 1 £364 £1577 £18935
Plan 2 £494 £2143 £25725
Postgraduate Loan £404 £1750 £21000

All these amounts are exclusive of any taxes or other deductions. However, repayments will not occur if a student is earning below the threshold amount. Also, he will be exempted from repaying if he does not have a job as well. 

Moreover, students have the option to pay off their student loans without incurring any penalty. In case you have left your course without completing it, you still have to pay for its loan. 

How is Student Loan Repayment Calculated? 

The amount of student loan repayment will depend on the repayment plan. The interest will be added to the first payment itself. Therefore, go through the following section to learn about interest rates and repayment amounts for their respective plans. 

Repayment Plan 1 

The student loan repayment amount is calculated at 9% of any income over the minimum threshold. In addition, the interest of 1.75% is charged as well. This rate will change on 6th September of every year. 

Also, the Retail Price Index or RPI will be considered during the calculation of interest. RPI is the rate of inflation and the cost of living in the UK. Therefore, the final interest will either be the RPI or Bank of England’s base rate with an addition of 1% to it. Among the two, the lower figure will be considered as the interest rate. 

For instance, consider the following scenario. 

Harry earns an income of £430 on a weekly basis. According to Plan 1, the minimum threshold is £364. Therefore, excess income over the minimum threshold is £66 (£430-364). Hence, the loan repayment amount will be £5.94 (9% of £66) for that week. 

Repayment Plan 2 

Similar to Plan 1, the repayment amount for Plan 2 is also 9%. However, the interest is charged at 5.4%. This is calculated by adding RPI with an additional 3%. Currently, the RPI is at 2.4%, which makes the interest rate 5.4% by adding an extra 3%. Also, this rate changes in September on a yearly basis. 

This rate will be applicable to the loans applicable for the duration of 5 years after the course is completed. In the case of part-time studying, it will be charged for the first 4 years when the course starts. After this period, the interest is calculated on the income of the student. 

For self-employed students, the interest is based on the total income reflected on the Self Assessment form. Accordingly, it will be calculated based on the taxable income of an employed student. 

Repayment Plan 1 Along with Repayment Plan 2 

This scenario can arise if a student is pursuing more than one course or has more than one student loan. So, the repayment amount will vary depending on the following conditions. 

Condition 1 – Income is Over Plan 1 threshold but Below Plan 2 threshold 

In this case, the repayment amount will be calculated and paid towards the Plan 1 loan. Thus, it will be 9% of the excess income over the threshold. 

Condition 2 – Income is Over Plan 2 threshold 

Here, 9% of the excess threshold will be calculated and used against both Plan 1 and Plan 2 loans. But, the final amount may be calculated in the ratio of Plan 1 loan over Plan 2. 

Postgraduate Loan 

Similar to Plan 2, the repayment amount for Postgraduate loans is charged at an interest rate of 5.4%. However, the amount is only 6% of the income over the minimum threshold.  

Postgraduate Loan with either Plan 1 or Plan 2 Loan 

Sometimes, a student can opt to take loans for both undergraduate and postgraduate courses. In this case, he will end up with Plan 1 or Plan 2 loans along with a postgraduate loan. Here, the repayment amount will be calculated at 15% over the minimum threshold. This includes 9% for Plan 1 or Plan 2 loan along with 6% for the postgraduate loan. 

If the Student has Two or More Jobs?

It is normal for a student to have multiple part-time or a combination of part-time and a full-time job. In such cases, the repayment amount is calculated individually against each job. For instance, consider the following scenario. 

Potter has taken a student loan and falls under Plan 1. He has 3 part-time jobs that are paying him £320, £330, and £420 respectively. Here, the first two jobs do not cross the minimum threshold of £364. However, the third job has an excess of £56 (£420 – £364). Therefore, he has to pay £5.04 (9% of £56) towards repayment. 

Self Assessment Tax Return 

There is a special condition of loan repayment for self-employed people doing multiple jobs. Generally, employed students have their taxes deducted at source by their employer. However, this does not happen for self-employed students. 

Thus, they have to fill out a self-assessment tax return form. Here, the repayment amount will be calculated on the total income reflected on the form. Hence, individual jobs will not be considered. Moreover, the interest rate will be charged on total annual income as well. 

How is Student Loan Repayment Made? 

Usually, the loan repayment amount is automatically deducted from the weekly or monthly salaries. This occurs when the student is working as an employee of a company. The amount is deducted by the company itself. 

In the case of self-employed students, they have to pay the amount at the same time they pay their taxes. Alternatively, they can create an online account with the Students Loans Company (SLC) to manage their repayments. 

Here, they have the option to pay the amount either through direct debit or through an international debit card. 

Working Abroad or Living Outside UK 

Students have to contact SLC if they have taken up a job abroad or leaving the UK for more than 3 months. This is because the minimum threshold amount will change according to the country they’re living or working in. 

Moreover, this amount changes every year. Therefore, students can track this change by contacting SLC. Additionally, they have to make repayments either through their online account or an international bank transfer (IBAN). But, make sure that the loan reference amount is mentioned during payment. 

Extra Repayments 

Students can also make extra repayments at no additional cost or penalty charges. These extra repayments can be used to cover overdue or future payments. Besides, the amount can be adjusted against multiple loans as well. 

Additionally, Wales students can have up to £1500 written off of their maintenance loan. This is only possible if the loan was taken between 2010 and 2013 for Plan 1. For Plan 2, the loan must have been taken after 2013.  

Update Employment Details 

Students must always update their employment details with SLC to be on the safe side. This will prevent them from overcharging you for their repayment amounts. In some cases, you might get a higher interest rate as well. 

Hence, you should update your employment details during the following conditions. 

  • Leaving or living outside the UK for more than 3 months 
  • Any Job Changes 
  • Shifting from a paid job to self-employment and vice versa 
  • Unemployment 
  • Notice from SLC requesting for employment details

Refunds for Excess Student Loan Repayment 

Occasionally, students may be wrongly charged an excess repayment amount due to certain factors. It may occur in one of the following scenarios.  

Delay in HMRC – Employer Communication 

Generally, HMRC or HM Revenue and Customs will inform the employer when the loan has been repaid in full. However, this communication can get delayed due to procedural issues. Hence, the student’s salaries might still get deducted for repayments. 

Annual Income becomes below Threshold 

Sometimes, a job change can cause a major change in his annual earnings. In case the annual income changes to below the minimum threshold, he will be exempted from making repayments. However, he may get charged if the job change hasn’t been brought to SLC’s notice.  

Repayment Made Before the Starting Period  

In some rare cases, employers can wrongfully deduct repayment charges before the payment period starts. This can be caused due to issues like miscommunication or doubts. 

How to Get a Refund for Excess Student Loan Repayment? 

To begin with, students can’t ask for a refund if they have knowingly paid towards extra repayment for their loans. Alternatively, they can ask for a refund if they fall under one of the above scenarios. 

To do this, they have to contact SLC regarding the same. In some cases, SLC may automatically refund the amount as ‘SLC receipts’. Students can also prevent being overcharged by direct debit setting during the final year of repayment. 

When is Student Loan Written Off?

According to government reports, more than 80% of a student loan is not completely paid before being written off. This is one of the reasons why students can opt to not repay the loan in full. Student loan repayments are very cheap and affordable in the UK. 

The loan can get written off depending on when it was taken and where the student is from. It also differs according to repayment plans. Thus, go through the following section to know more.  

Repayment Plan 1

Location Year when Loan was Taken Time Period
Scotland Fiscal year 2006-07 or earlier 30 years after the first repayment in April or the applicant has reached 65 years of age. Whichever is earlier.
Scotland Fiscal year 2007-08 or later 30 years after the first repayment
England, Northern Ireland and Wales Fiscal year 2006-07 or later 25 years after the first repayment
England, Northern Ireland and Wales Fiscal year 2005-06 or earlier Applicants reach 65 years of age.

Repayment Plan 2 

For Plan 2, the student loans are written off after 30 years from the first repayment. 

Postgraduate Loan 

In the case of postgraduate loans, it will be written off after 30 years from the first repayment. However, this is for students residing in England or Wales. For postgraduate students from Northern Ireland or Scotland, they will fall under Plan 1. 

Death 

Student loans will also get canceled in certain events like death. Here, family or relatives of the student have to contact SLC and submit their death certificate along with other documents. 

Disability 

In some cases, a student loan can be written off if the student suffers from a disability after taking the loan. This is more likely to occur if the student is not able to do any type of job. For this, they have to present the relevant documents and report the same to the SLC. 

Student loan repayment is an easy and affordable process and it is advised not to repay the loan beforehand as you can get prematurely written off. Make sure that you’re always updated with the latest interest rates to prevent being overcharged. If paid in excess, you can always ask for a refund by contacting the SLC.