Here’s what you need to know about Repaying Your Student Loan

Here’s what you need to know about Repaying Your Student Loan

Paying back your student debt can be an overwhelming experience. Now we're nearing the end of the year it's more likely your loans are on your mind. There’s so much that happens after you’re given the loan. You may graduate, Begin a postgraduate role, become self-employed or maybe move overseas. The point however remains that when the time comes you’ll have to repay your debt! 

First things first.

Do you know your student loan type?

There are 3 loan plans which are; student loan Plan 1, 2, and 4. The loan type you have all depends on which uni you went to and the country that presented it to you. 

Are student debts different from other debts?

The student loan debt is unique and you’ll see why. When you take a tuition loan to cover your course fees or cover your living costs, the total amount of everything is what’s called a student loan. It’s different from scholarships, grants and bursaries-Those shouldn’t be paid back.

The Student finance repayment process starts after April when you’ve left uni and are now employed. By this time you can only pay 9% of your earnings at the beginning.

While there are no charges for taking out your student loan, interest is added. How? The more money you earn the higher your monthly repayments. 

Student loan debts are automatically deducted from your salary the moment it comes in, no matter where you are. However if you haven’t paid back in roughly the next 30 years, your total debt gets canceled. 

A quick tip is to start paying up fast because the government sometimes can turn on you and change the terms. So try as hard as you can to keep ahead of your payments! 

And interest?

You’re charged interest from the day your loan is given to you until you finish repaying your debt. That’s where one teensy thing called RPI (Retail Price Index) comes in. It shows when prices have risen or dropped across the UK in the past 12 months. These student loan interests are based on RPI so when it goes down, the interest rates go down too. Also, this RPI thing will work depending on your loan type. 

Here’s how much interest you’re charged

While at uni-up until April after you complete your course, the interest charged is RPI plus 3%.

When you’ve left your course-from April when you’ve left your course, interest is based on your income, interest charged is RPI plus 3%

When your details aren’t up to date-you’re charged RPI plus 3% whatever your income until your lender has the info they need.

How plan 1 student loan works

Works if you took a loan in England and Wales between 1998 and August 2012 or, anytime in September 1998 while in Northern Ireland. With plan 1-your monthly repayments are usually higher than those under plan 2.

The interest rate on the plan1 is usually set each September and is lowest between

  • RPI rate for March same year
  • Bank of England base rate plus 1%

The interest rate on plan 1 loans stays the same whether you’ve graduated or are still studying. Plus, they aren’t affected by how much you earn.

Loan repayments for plan 1

Re-payments start after you’ve left uni and are earning enough.

The repayment threshold for plan 1 student loan is £19,895 per year (£1,657 per month or £382 per week) before taxes are deducted. If you earn more than the threshold, and your repayments begin, you pay 9% on the amount above the threshold.  For example; say you earn £24,895 which is £5,000 above the threshold, you’ll pay 9% of £5,000 which is £450.

When can a plan 1 student loan be written off?

Writing a loan off means you don’t have to make payments towards it anymore. Say you began your studies in 2005/6 your plan 1 student loan will be written off when you’re 65 or for whatever reason, disability or death. 

How plan 2 student loan works

This applies to students who took out loans after 2012 in England. These students not only pay more fees but even the interest charge is much higher.

Loan repayments for plan 2

You start making repayments in April after you’ve graduated. The student loan repayment threshold for plan two is £27,295 each year, £2,274 each month, or £524 each week. In case you earn less than that in the taxable income you don’t have to pay anything. If you earn more when the threshold kick in and you pay 9% on the total of £27,295. If you’re earning £31,295, you’ll repay 9% of £4,000 which is £360 per year.

When are plan 2 student loans written off?

Plan 2 student loans are written off 30 years after your first eligible to repay. Which is the first April after you graduate.

How plan 4 student loan works

Introduced in April 2021, this plan solely applies to Scottish students who started a degree in the UK and any other EU students that started a degree in Scotland or if you took out the loan after 1st September 1998.

Just like plan 1, the interest rate for plan 4 students is set in September every year and is lowest between

  • RPI rate of march the same year
  • Bank of England base rate plus 1%

Loan repayments for plan 4

For plan 4, the student loan repayment threshold is £25,000 per year, £2,083  every month, or £480 per week. Whatever your threshold is you pay 9% of the amount above the threshold. For plan 4, the threshold is £25,000 meaning if you earn £30,000 a year, you repay 9% of £5,000 which is £450 a year.

When are plan 4 student loans written off?

Plan 4 student loans are written off when you turn 65 years old or as you’re reaching 30 years after you first become eligible to repay. All this is if you started studying in 2006/7.

Final thoughts

Before you start paying off your debt, make sure you haven’t been wrongly overcharged, yes it happens. Get to grips with tax, look for savings rates higher than the loan interest, start saving early so you can begin repaying. Lastly, if you aren’t sure what option is best for you, ask for help from your university’s student money advisor.