Student loan repayment

VIDEO- Clear, fun video that outlines repayment.

Make sure you know all of the figures in blue.

When do students start repaying a loan?

• From the April after they leave their course, but only if they are earning over £25,000 a year
• If they are on a short course or they leave their course early and would normally have been due to make repayments before April 2016, their repayments will not start until that date for administrative reasons.
• Part-time students start to repay their student loan from April 2017 if they’re earning over £25,000, even if their course lasts shorter or longer than three years.

How much will the repayments be?

• Repayments are 9% of a person's income above £25,000. For example, if a salary was £29,000, the 9% would only apply to £4,000, meaning the repayment would be £30 per month.
• Repayments are normally taken automatically from their salary with tax and National Insurance. Separate arrangements are in place with HMRC if they’re self-employed.

The following table shows some salaries and typical repayments. You may want to learn one or two example figures to put repayment in context for young people.

How long will it take to repay a loan?

• It depends on the size of a loan and how much a person is earning after finishing their course.
• After 30 years, any unpaid balance will be written off.

Interest on student loans

Interest is charged on the loan while students are studying. Until they start repaying the loan, interest is charged at the rate of inflation plus 3%.

When they're due to start repaying their loan the amount of interest they're charged depends on how much they earn. They will be charged the following rates of interest:

• if they earn less than £25,000: interest at the rate of inflation
• if they earn £25,000 to £45,000: interest at the rate of inflation plus up to 3%
• if they earn over £45,000 : interest at the rate of inflation plus 3%

The inflation measure used is the Retail Prices Index (RPI). The interest rate for student loans is updated every September, and is based on the RPI for March. The RPI in August 2017 was 3.6% (source), meaning that interest rates for 2018/9 will be 6.6% for students still studying.

Commercial loans available from banks are typically linked to the Bank of England base rate - currently 0.25%.

Common FAQ's about student loan repayment

You will often be asked the following questions in sessions so make sure you know the answers.

What happens if you lose your job, take a career break or a salary cut?

• If your salary falls below £25,000 a year your repayments stop. So if you take a career break or are unemployed your repayments will be suspended until you are earning over £25,000 again.

Can you pay back your loan early?

• Students can pay back all or some of their loan at any time without incurring an early repayment charge. They can do this even if their salary does not yet reach reach the starting level for repayments. However, students should crunch the numbers and make sure it is in their best financial interest. Student loans are different from most loans as they are timed and remaining debt is wiped after 30 years. Some students may be better off allowing repayments to be taken for 30 years rather than trying to shift large chunks.

What if I move abroad after my degree?

• You still have to pay your loan back! As with UK residents, once your income goes above the student loan repayment threshold, you will be required to make student loan repayments. However, because of differences in living costs, your repayment threshold when living abroad may not be the same as it is in the UK. Student loan repayments are taken automatically from anyone working in the EU as there is a reciprocal system. Those working outside the EU must arrange their student loan repayments directly with the Student Loans Company.