Who provides Student Loans in the UK?
If you have taken out a student loan for a University course it will have been provided by the Student Loans Company. The Student Loans Company is a UK public sector organization and is established to provide financial services in the form of both loans and grants to UK students. They are also responsible for the administration and repayment of the loans.
Courses commenced after 1998
For students who have taken out a student loan for a course which started in or after 1998 then the repayment of the loan is centred on your income following the completion of the course.
Repayments based on income
Following the completion of your course if you start earning over a certain amount then you will have to start paying back your loan. This amount is termed the repayment threshold. If you are earning but it is less than the specified repayment threshold then you will not be required to start paying back your loan.
If you are above the threshold the amount of the payments will be calculated as a percentage of the income which you are earning.
The current repayment threshold is set at an annual salary of £15,000 before deductions. This means that the deduction of income tax, national insurance etc is not included when setting the repayment threshold.
If you do not earn an annual salary but are paid on either a weekly or monthly basis then the equivalent repayment thresholds are the following:
- £1,250 a month
- £288 per week
How will my student loan repayments be made?
The most common way in which your student loan repayments will be made automatically though the UK tax system. The following options for paying back student loans are available and they depend upon what kind of employment situation you find yourself in.
- PAYE – Pay As You Earn. This is for people who are employed by an individual or company which pays that person a salary. Deductions will be made automatically from your salary and will appear on your pay slip.
- Self Assessment. If you are self employed through running your own business as an example or if you are both self employed and employed by another individual or company then it is up to you to calculate your own repayments and to make these repayments.
- Overseas. If you are currently working overseas or plan to work overseas then you will be required to make a specific arrangement with the Student Loans Company.
The repayments are worked out on a basis of paying 9% of what you earn over the repayment threshold. For example if you pay on a monthly basis through PAYE then you will be required to pay 9% of what you earn each month over the threshold of £1,250 a month. In most cases when you first start earning following University you will expect to pay around £22 each month in student loan repayments.
Always remember it is not 9% of your total earnings but only 9% of what you earn over the repayment threshold.
When will the repayments begin?
There are two factors which will start the process of repayments:
Failure to complete the course – if you stop attending your course for whatever reason then the repayments of the loan you obtained for that course will start.
Loan repayments will usually start on the 6th of April following the occurrence of one of the above events.
If you graduated your course in June 2009 then you will not be required to start make repayments until 6th April 2010.
If you were supposed to graduate from your course in June 2011 but in fact withdrew from the course in November 2009 then you would be required to start making payments on 6th April 2010, regardless of when you intended to graduate.
Obviously this is subject to you earning over the repayment threshold. If you start making earning over the repayment threshold after 6th April following your last attendance your repayments will start as soon as possible. If you have started to make payments but you subsequently lose your job or start earning below the repayment threshold then the requirements to make the repayments will cease.
Do I have to stick to the repayments or can I pay more to pay the loan off quicker?
You are entitled to manage the loan the best way you see fit – other than the requirement to pay the minimum amounts when earning over the threshold – meaning that you can pay more than the minimum required and can pay it off in lump sums. It is not usually advisable to pay your loan off any quicker than needed due to the low interest charges in comparison to other loan providers.
What else am I entitled to do?
You can find out your student loan balance and you are also entitled to a refund on payments made in that year if your income does not come above the repayment threshold.
I receive disability benefits, how am I affected?
Any disability-related benefits which you may receive are not included when calculating whether your income exceeds the £15,000 repayment threshold even if these benefits are indeed taxable. If you are unfit to work and receive disability-related benefit as a consequence of this then the repayment of your loan will be cancelled.
I am employed but my income various from month to month. How is my loan calculated?
If you get paid in equal instalments each month through PAYE then your student loan repayments will be the same amount each month. If you amount you earn changes throughout the year then your rate of repayment will be calculated according to each PAYE period.
If your monthly income changes throughout the year and means that your annual income throughout that year is less than the repayment threshold of £15,000 then you will be entitled to a refund of those payments you already made throughout the year.
Student Loan Interest
One common misconception with student loans is that they are interest free. This is not the case but they do differ from normal commercial loans as the interest is subsidised by the government and due to the fact they immediate repayment is not required. That being contingent on the course no longer being undertaken and the earnings being above the repayment threshold.
The interest rate for income contingent student loans is set each September and is the maximum that will be charged during that academic year. Interest will accrue from the date that they are paid to the individual in question until the date which they have been paid off.