Put simply, a student loan is a way to finance your university education. How much you repay and when you are required to begin repaying varies according to whether you are in England, Wales, Scotland or Northern Ireland.
Here, Julie Reid, Early Years Marketing Consultant, sheds some light on the various student loan schemes, busting some myths along the way.
Student loans are available to help cover the cost of tuition fees for university or college. If you’re on a low income, you may also be able to get help with living costs. There are a number of different student loan plans in operation and gov.uk explains them all.
Where and when you applied for your student loan will determine which plan you’re on. You can study in a different UK nation to the one you applied, and in that case, the plan you are on will be for the nation in which you made your application.
For example, you may be a student who lived in Northern Ireland but moved to study in Scotland. This would mean you would be on Plan 1, which is the plan for Northern Ireland. If a student living in Scotland applied to study in Scotland, they would be on Plan 4 (the plan for Scotland).
It may sound complicated, but the government website sets things out clearly.
When do I start repaying my loan?
Again, this will depend on which plan you’re on. You won’t be expected to start repaying your loan until your income reaches a certain threshold.
Each plan has its own threshold, currently ranging from £21,000 to £31,395 (depending on certain circumstances, such as if you have a postgraduate loan). The important word here is ‘income’, which includes any bonuses you might be paid too.
If you’re an employee and you’re taxed on the Pay As You Earn (PAYE) system, your employer will deduct student loan repayments from your salary. If you’re self-employed, HM Revenue and Customs (HMRC) will calculate your repayment from your self-assessment tax return. You will then pay this at the same time as any tax you owe.
Your repayment will also vary according to your plan, and how many loans you have taken out. For example, you would pay 6% of your income for a postgraduate loan, and 9% for the other plans. You wouldn’t be expected to start repaying until the April after you leave your course or, if you’re on a part-time course or studying for a post-doctoral qualification, the April four years after this began (at the earliest).
If you are on more than one plan (providing you don’t have a postgraduate loan), your repayments will be 9% of your income over the lowest threshold of the type(s) of plan you have. You’ll only have to make one repayment every time you get paid, even if you’re on more than one type of plan.
If you have a postgraduate loan, then you’ll repay 6% of your income over the postgraduate loan threshold (£21,000 a year) and 9% of your income over the lowest threshold for any other types of plans you hold.
How long is my repayment term?
Repayment terms for student loans vary from 25 years (on Plan 1) to 40 years (on the new Plan 5, which was introduced in 2023). So, it’s something you need to factor into your financial calculations for a long time to come!
You can make overpayments if you would like to. However, there are a number of factors to take into account before you decide, as you won’t be able to get a refund on any overpayments. As the loan will be written off at the end of your repayment term, it’s best to get advice from a financial adviser to make sure this is the right for you.
When you’re not expected to repay
If you stop working, or your income drops below the threshold for your plan, you won’t be expected to make repayments. If you haven’t earned enough to meet your plan’s threshold by the end of the tax year, you may be able to claim a refund.
There is a mistaken belief that if you work abroad, you no longer need to repay your student loan. This is not true! Unless you can provide evidence that your income is below the threshold, you will still be expected to make repayments – even from abroad.
The clue is in the name. It’s a student loan, not a grant. A loan needs to be repaid in the same way it would be if you had gone to a bank to borrow money. Although, having a student loan doesn’t usually affect your credit score.
The main difference when it comes to working abroad is that it becomes the responsibility of the Student Loans Company (SLC) to deal with the repayments, rather than HMRC. If you choose to work abroad for more than three months, you should update your details with the SLC. You’ll need to do this annually to make sure you’re paying the correct amount.
Because the cost of living in other countries is not the same as the UK, the threshold for repaying your loan when working abroad will depend on the country you’re in. These thresholds are set out on the gov.uk website, as well as how you can make your repayments from abroad.
It’s important you keep up your repayments while you’re abroad – otherwise you will build up arrears, which you will still need to pay even if your income is below the threshold. Arrears will have to be paid separately from your monthly repayments.
I hope this article has helped you to understand students loans a little more, but if you need any more information, the 'Student Finance for Undergraduates' government webpage has all the information you need.