Student loans and how they are repaid works differently from other types of borrowing and many people may not be aware that you only need to start paying it back once your income is over a certain amount. Others might not know that if you have an outstanding balance at the end of your loan term it will be written off.
New guidance from the Student Loans Company on GOV.UK offers ‘Eight things you might not know about your student loan, but definitely should’ which is an invaluable resource for anyone who has borrowed - especially if your course finished some time ago.
The first thing you need to do is find out what ‘plan’ you are on for your student loan, fortunately, this is really simple and basically boils down to where you were living and studying when you took one out - the rules for each plan determine how you will repay it. Below is an overview of everything you need to know.
1. Different rules for repaying based on when and where you took out your student loan
The type of loan you have will depend on when and where you started studying - this is known as your plan type. It’s important you understand which plan type you’re on so you can better manage your repayments.
There are 4 plans:
- Plan 1 - students in England and Wales
- Plan 2 - students in England and Wales
- Plan 4 - students in Scotland
- Postgraduate Loan - students in England and Wales
Plan 4 is probably the one most people in Scotland are on, you’re on Plan 4 if you’re:
- A Scottish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1 September 1998
- An EU student who started an undergraduate or postgraduate course in Scotland on or after 1 September 1998
2. Your repayments are based on your income, not how much you borrowed
Unlike other borrowing, what you repay depends on your income and not how much you owe. You repay 9% of your income above the repayment threshold for your plan type. If you’re not working or your income is below the threshold, you won’t make any repayments.
Current repayment thresholds
- Plan 1: £388 a week or £1,682 a month (before tax and other deductions). Interest is 3.25%
- Plan 2: £524 a week or £2,274 a month (before tax and other deductions). Interest is 6.3%
- Plan 4: £487 a week or £2,114 a month (before tax and other deductions). Interest is 3.25%
- Postgraduate loan: £403 a week or £1,750 a month (before tax and other deductions). Interest is 6.2%
You can find examples and full details on interest on GOV.UK here.
3. You need to keep your contact and bank details up to date - even after you finish studying
After you’ve finished your course, the Student Loans Company will still be in touch, so it’s important that you keep your contact details up to date. Otherwise, you’ll miss out on important information about your repayments.
You should also keep your bank details up to date in your online repayment account in case you’ve repaid more than you owe and are due a refund.
Update your contact or bank details in your online account here.
4. You can make voluntary repayment - but use caution
People can make additional repayments towards their loan at any time, but this is optional and before doing this, it’s important to think about your personal and financial circumstances and how these might change in the future.
Don’t make voluntary repayments if you do not expect to fully repay your outstanding balance by the end of the loan term.
If you’re not sure about making a voluntary repayment, you should get professional advice from a financial advisor as any voluntary repayments you make can’t be refunded.
5. Going abroad for more than three months? Let Student Loans know before you go
If you are leaving the UK for more than three months, you need to let the Student Loans Company know so they can continue to make sure you’re repaying the correct amount towards your student loan. You can do this online here.
6. Your student loan doesn’t have any impact on your credit rating
Student loans are different from other types of borrowing because they do not appear on your credit file and your credit rating is not affected. However, if you apply for a mortgage, lenders may consider if you have a student loan when deciding how much you can borrow.
7. Your loan will eventually get written off
Even if you’ve never repaid, your student loan balance will be written off after a period of time. Depending on the repayment plan you’re on, this will either be 25 years after you become eligible to repay, 30 years, or once you turn 65.
When Plan 4 loans get written off
- Loan taken out in 2006 to 2007, or earlier - written off when you are 65, or 30 years after the April you were first due to repay - whichever comes first
- Loan taken out 2007 to 2008, or later - written off 30 years after the April you were first due to repay
When Plan 1 loans get written off
- Loan taken out in 2005 to 2006, or earlier - written off when you’re 65
- Loan taken out in 2006 to 2007, or later - written off 25 years after the April you were first due to repay
When Plan 2 loans get written off
- Plan 2 loans are written off 30 years after the April you were first due to repay
When Postgraduate Loans get written off
- If you’re a postgraduate student from Scotland, you’re on Plan 4
- If you’re a student from England or Wales, your Postgraduate Loan will be written off 30 years after the April you were first due to repay
- If you’re a postgraduate student from Northern Ireland, you’re on Plan 1
Find out more about when your loan will be written off here.
8. You should switch to Direct Debit when you’re close to fully repaying to avoid over-repaying
When you’re within the final two years of loan repayment, you should switch your repayments to Direct Debit so you don’t pay back more than you owe through your salary - find out more here.
Find out more about repaying your student loan on GOV.UK here.
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