exchange@slc.co.uk

Issue 3

▌Essential reading Student loan repayments explained
You consistently tell us that repayment is one of the main areas of confusion for your students. We’ve been working hard to plug the gaps in knowledge about repaying student loans with the introduction of the new repayment quick start guide, quick guides and the repayment website. Here we’ll go over the main facts and common myths about student loan repayments to help you help your students.

In a couple of months students will be graduating and moving onto the next stage of their lives. Once they start earning over a certain amount, they’ll have to start making student loan repayments.

There are two types of repayment plan – Plan 1 and Plan 2. Plan 2 applies for students who studied in England and Wales and started their studies on or after 1 September 2012. Otherwise Plan 1 repayments apply wherever the student studied in the UK. This information is for Plan 2 loans, for info on Plan 1 loans you can go here – www.studentloanrepayment.co.uk

When do they start repaying?

Full-time students will be due to start repaying their loan the April after they finish or leave their course.

Part-time students will be due to start repaying the April four years after the start of their course, or the April after they finish or leave their course, whichever comes first.

But even after these dates students will only start making repayments if their income is over the current threshold, which is £21,000 a year, £1,750 a month or £404 a week.

The repayment process – how it works

If the student is employed, and their income is over the threshold, their employer will take repayments directly from their salary along with tax and National Insurance. The student loan repayment amount taken will show on their payslip.

Their employer then tells HM Revenue and Customs (HMRC) how much they’ve repaid. After the end of the tax year HMRC tells us how much they’ve repaid for that year and we apply the repayments to their balance.

If their income changes, either rising or falling, their repayment amounts will automatically change to reflect this. If they stop working, repayments will stop, until they start working again and their income is over the threshold.

If they’re self-employed, HMRC will calculate what they owe each year when they file their tax return.

How much will the repayments be?

The current thresholds for repayment are £21,000 a year, £1,750 a month or £404 a week.

The student will pay 9% of their income over these thresholds. For example, if they’re paid monthly and earn £2,250 before tax they’ll repay 9% of the difference between what you earn and what the threshold is.

£2,250 - £1,750 = £500

9% of £500 = £45

So their student loan repayment would be £45 in that month.

Repayments will be taken if they go over the weekly or monthly threshold at any point in the year, for example if they work overtime or get a bonus. If their income changes, either rising or falling, their repayment amounts will automatically change to reflect this.

For more examples of how much repayments might be, go to www.studentloanrepayment.co.uk

Interest

One myth we hear time and time again is that student loans are interest free! In reality interest is charged on the loan from the day we pay the first instalment until it’s paid off in full.

The amount of interest charged is based on the rate of inflation (Retail Price Index [RPI]) and will vary depending on the student’s circumstances.

The interest rate is updated once a year in September, using the RPI from March of that year.

What if they go abroad?

Another myth is that if they go abroad, they won’t have to repay! If the student is planning to travel or work abroad for more than three months after they finish or leave their course, they must let us know. Their monthly repayments will be based on the earnings threshold for the destination country.