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With 2020 summer ceremonies postponed or cancelled, graduation probably isn’t going to look like you thought it would. One thing we can talk about with more certainty is your student loan. Here, we help you understand it a little more to make it feel more manageable.

When do I start paying back my student loan?

You only start making student loan repayments when your salary reaches a certain threshold. If you started your course after 2012 and you’re from England or Wales, the pre-tax threshold is £26,575 per year. For Scotland and Northern Ireland, or if your course started before 2012, it’s £19,390.

That means if you’ve been furloughed and your income is now below the threshold, you won’t have to keep making the same repayments - it will change based on your current income. If your salary changed but you’ve accidentally paid more of your student loan than you had to, you can reclaim the overpayment. For current students facing hardship, grants are potentially available through the government if you’re Scottish, or through your individual university.

Student loan repayment thresholds

I am... I started university between 1998 and 2011 I started university in 2012 or after
English £19,390 £26,575
Welsh £19,390 £26,575
Scottish £19,390 £19,390
Northern Irish £19,390 £19,390

Source

Once you’re earning more than the threshold per year, the earliest you start paying back is the April after graduation. For example, if you graduate in June 2020 and start a job in September 2020 with a salary of £28,800, you’d start paying back your loan in April 2021.

How much will I pay back each year?

The amount of your student loan that you have to repay each month or year depends on how much you earn, not how much you borrowed. Each year, you repay 9% of the amount you earn over the threshold. Continuing the example above, if you’re from England graduating this year and start earning an annual salary of £28,800, your gross monthly pay is £2,400. This works out at £186 over the monthly threshold of £2,141. So you pay 9% of £186, which works out at £16 per month.

To find out how much you’ll pay back and when, have a look at the Money Saving Expert student loan calculator.

Do I have to pay back my student loan in a certain time?

There’s no deadline for you to pay back your student loan. In fact, if you haven’t cleared it after 30 years, it’s wiped. For example, if you graduated in June 2020, you’re eligible to start paying in April 2021, provided you earn enough. But if the loan isn’t clear by April 2051, you’re off the hook and won’t have to pay any more.

If you earn under the threshold throughout your career, you’ll never have to pay your loan back. According to the Institute For Fiscal Studies, 83% of those with English student loans won’t clear the debt (including interest) within the 30 years.

How do I pay back my student loan?

The process for paying back your student loan depends on your employment. If you have a full-time employer, HR will check if you’re earning over the threshold, work out how much you owe and the money will come out of your payslip, along with Tax and National Insurance.

If you’re self-employed, you need to select that you have a student loan when you register for self-assessment tax. If eligible, you’ll make your student loan repayment when you file your taxes.

For those working abroad for more than three months, you need to tell your student loans company and make repayments to them directly. Information about the different thresholds for each country can be found on the Government website.

Can I pay back my student loan all at once?

The short answer to paying back your loan in one go is yes, you can if you want to. The long answer is that it may not be the best use of your money, unless you have no other debts and are a high earner paying high interest. We’ll explain more about it in a future blog post, for now - have a look at the Money Advice Service help pages.

How much interest is added?

Even though you may not start paying off your loan for several years after graduating, interest is charged from the first payment made to you, your university or your college. For example, I started studying in September 2013, so for me, interest has been building for the last 7 years.

Most student loan interest rates are based on the Retail Price Index (RPI), which is linked to the changing cost of living in the UK. Each September the interest rate is recalculated using the RPI from March of that year. It is currently 2.4%. For Scottish or Northern Irish students or people who started university before 2012, the interest rate charged is either the Bank of England base rate (currently 0.1%) plus 1% or RPI, whichever is lower.

These ups and downs to interest won’t impact your monthly or yearly payments but they will affect the size of your loan overall.

Student loan interest rates

I am... I started university before 1998 I started university between 1998 and 2011 I started university in 2012 or after
English RPI 1.1% 3% plus RPI while studying then variable on income
Welsh RPI 1.1% 3% plus RPI while studying then variable on income
Scottish RPI 1.1% 1.1%
Northern Irish RPI 1.1% 1.1%

Source

The interest rate you’re charged could also change if you don’t respond to Student Loans Company requests for information or evidence, so make sure you get in touch if you receive a letter asking you to do so.

All of these numbers, percentages and brackets can make it seem more complicated than it is, but don’t worry - the Student Loans Company should be able to provide all the information you need.

The above article is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.

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