Personal Finance

Paying off student loans UK

Now you’ve actually done the difficult bit of finishing your university studies, it’s important to know how you need to begin repaying your student loans. Let's discuss.

Knowing how much you need to pay back can be complicated, as it depends on when you began studying. Although the idea of a big student loan you need to pay back appears daunting, repayments won’t impact you as much as you think they would.

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The basics: Paying back student loans

Before you work out exactly how much you need to repay, you should know exactly what you need to repay. Not all student finance is the same and some types of support won’t need to be repaid.

Do you have to pay back student finance?

Yes, you have to pay back student finance, but only certain types of monetary support. You must repay student loans no matter which part of the UK you’re from. This includes both tuition fee loans and maintenance loans.

You will also have to continue making repayments overseas, so it doesn’t make a difference if you move abroad.

If you’ve taken out a Future Earnings Agreement or FEA, the terms of your repayment are clear in your initial agreement. This will typically be over a set, pre-agreed terms such as 60 repayments or the equivalent of five years.

You don’t have to replay bursaries, grants or scholarships you may have received, which is good news. How much you pay back though depends on a few things, like your income, and your Plan type which is based on what and when you started studying.

Do I have to pay back grants or scholarships?

No, you do not have to repay grants, scholarships, or bursaries. These are non-repayable types of student support given to help you while at university. You will only have to repay student loans.

However, some grants or bursaries may have spending criteria, meaning you would have had to spend the money in a certain way - for example on books or essential study equipment. If you can’t prove that you had, then you may have to repay the money.

How to pay back student finance?

You will automatically begin repaying your student loan after you’ve finished studying once your salary makes you eligible. For those with a Plan 2 loan in England or Wales - meaning you began studying after 2021 - you would need to earn above £27,295 per year until you must start making repayments. But this is different depending on your Plan.

If you’re self-employed, you will need to go through Self-Assessment.

Which repayment plan am I on?

Your student loan repayment plan will determine the rate that you need to start paying back your loan. There are four different plans which depend on what type of loan you took out and when:

Plan 1

  • English or Welsh students who started a UK undergraduate course in the UK before September 2012
  • Northern Irish students who started an undergraduate or postgraduate course in the UK on or after 1 September 1998
  • EU students who started an undergraduate course in England or Wales after 1 September 1998 and before 1 September 2012
  • EU students who started an undergraduate course in Northern Ireland after 1 September 1998

Plan 2

  • English or Welsh students who started a UK undergraduate course on or after 1 September 2012
  • EU students who started an undergraduate course in England or Wales on or after 1 September 2012
  • Those on an Advanced Learner Loan on or after 1 August 2013

Plan 4

  • Scottish students who started a UK undergraduate or postgraduate course on or after 1 September 1998
  • EU students who started an undergraduate or postgraduate course in Scotland on or after 1 September 1998

Postgraduate loan

  • English or Welsh students who took out a Postgraduate Master’s Loan on or after 1 August 2016, or a Postgraduate Doctoral Loan on or after 1 August 2018
  • EU students who started a postgraduate course on or after 1 August 2016

You may find that you are in more than one Plan, especially if you’ve completed both an undergraduate and postgraduate loan.

What is student loan interest?

Student loan interest depends on your plan type and your income. For those on Plan 1 and Plan 4, you will pay 1.1% interest, which rises to a minimum of 2.6% for Plan 2. Plan 2 will also add up to an additional 3% interest if you’re currently studying, or have incomes above the minimum repayment threshold of £27,296.

For those with a Postgraduate loan, you will pay 5.6% back, which is made up of the 2.6% Retail Price Index (RPI) and an additional 3%.

How much you repay

The monthly amount you repay depends on your plan type and income. It’s important to note early on that you will only begin repaying your loan after you’ve finished studying and once you’ve begun earning above the repayment threshold, which we’ll cover next.

How much student finance do I pay back?

The rate at which you pay back a student loan depends on your plan type and your income level. This means the more you earn, the more you pay back, so you won’t be at a disadvantage if you have a low income.

For Plans 1, 2, and 4, you must repay 9% of your income over the monthly threshold, whereas a Postgraduate Loan is 6%.

Plan 1

You will pay back 9% of income over the monthly threshold of £1,657 on Plan 1. So if you earn £1,916 per month (£23,000 p/a), you will replay 9% of £259 (£1,916 - £1,657). Your monthly repayments would be £23.

Plan 2

For Plan 2 you will repay 9% of your monthly income above £2,274. If you earn £2,916 per month (£35,000 p/a), you will repay 9% of £642 (£2,916 - £2,274). Your monthly repayments would be £57.

Plan 4

On Plan 4, you will repay 9% of monthly income above £2,274. If you earn £3,750 per month (£45,000 p/a), you will repay 9% of £1,476 (£3,750 - £2,274). Your monthly repayments would be £132.

Postgraduate Loan

You will pay back 6% of a Postgraduate Loan over the monthly threshold of £1,750. If you earn £2,250 per month (£27,000 p/a) you will pay back 6% of £500 (£2,250 - £1,750). Your monthly repayments would be £30.

How much do I pay if I’m in more than one Plan?

If you’ve completed both an undergraduate and postgraduate degree, it’s likely you’re on more than one plan. If you’re on, for example, a Plan 2 and a Postgraduate Loan then you’ll repay both rates at the same time.

You will pay back 9% of the Plan 2 and 6% of the Postgraduate Loan for income over their respective thresholds. So if you earn £2,500 per month (30,000 p/a), that’s both 9% over £2,274 and 6% over £1,750. You would therefore make monthly repayments of £65 (£20 for Plan 2, and £45 for the Postgraduate Loan).

When do I have to start repaying student loan

You will have to start repaying student loans as soon as you begin earning over the monthly income threshold for your respective plan. This includes income from both self-employment and regular employment.

If you still haven’t repaid your loan after 30 years, then it will be automatically wiped clean.

Making extra payments

If you choose to, you can make additional student finance repayments too. These additional and voluntary payments are on top of the monthly repayments which are compulsory (if earning above the Plan threshold), where you can decide whether to make payments to both Plans, or just pay down one.

Should I make extra student finance payments?

For most UK students who have taken out a student loan, it’s often best not to make additional payments. As the debt gets scrapped after 30 years, with interest being added to the loan it’s unlikely you’ll pay off both the full amount before it expires.

However, everyone’s situation is different and it may be in your interest to make extra student loan payments to avoid paying more in the future.

Getting a refund

If you’ve paid more on repayments than you should have, or you began making repayments before you’re actually eligible, you can ask for a refund on those payments from the Student Loans Company (SLC).

How much do I pay back with a Future Earnings Agreement?

For a Future Earnings Agreement, you pay back a fixed percentage of your salary over a certain threshold, for a pre-defined number of repayments. This will be based on your predicted future earnings.

Unlike a traditional student loan, interest is not added. Instead, the lower your earnings post-study, the less you pay back. Alternatively, the more you earn, the more you end up paying back.

For example, say you borrow £20,000 to study with an estimated post-study salary of £35,000, you will repay 12.9% of your salary per year over a 5 year period (60 monthly payments). Over the course of repayment, you will pay back £22,575.

For university repayments, you will typically have a 60 month repayment period (or 5 years). This means you must pay 60 repayments, which also pauses if you stop earning any money. So, if you take a three-month break after making 30 months’ payment, you will still have 30 repayments left regardless of when you return to work.

FAQs

Do I pay back my student loan if I move abroad?

Yes, you will still make repayments if living abroad. You will pay exactly the same as if you were based in the UK. But there are some differences depending on your Plan and which country you’re living in abroad.

When do I start making repayments?

You will start making repayments after you’ve left university and once you’ve started earning above the monthly income threshold for your plan.

What if I drop out of university or college?

You still need to repay student finance if you drop out of university without intending to return. This won’t always be 100% of the amount you received, as this depends on when you leave and how many terms you have left for that academic year.

When are student loans written off?

Student loans will get written off and cancelled after 30 years, or when you reach age 65.

Do repayments increase with the size of a loan?

No, student loan repayments are the same no matter how large the amount you borrowed is. For example, repayments on a £5,000 loan are the same as on a £50,000 loan, so long as you’re earning over the monthly Plan threshold.

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