Everything you need to know about repaying your loans
One of the biggest worries about the student loan is the huge perceived debt that comes with it.
We don't think the repayment of these loans is unmanageable - and you shouldn't either. No-one should consider the loan repayment as a barrier to higher education - in fact, under the new terms, anyone studying now will be paying back a much better rate than those who studied only a few years ago.
The information on this page is GIF free and it's hardly comedy gold. But be aware of it - the better your understanding of this, the better your hold on your finances will be.
When do I pay it back?
As a consequence of the changing fees, Student Finance has had to re-organise itself. You won’t begin repayments until the April after you graduate and until you earn a salary of over £21,000.
Is it there interest?
Yes - and it is charged on top of inflation.
In lending students the money, the Government’s intention isn’t to make a profit and they subsidise the interest rate to make it more repayable.
Unfortunately, they still charge interest, which doesn't strike us as especially charitable.
|Income||Rate of Interest|
|While studying (and up to the April after graduation)||Rate of inflation + 3%|
|Earning under £21,000||Rate of inflation|
|Earning between £21,001 - £41,000||Rate of inflation + (up to, dependent on income) 3%|
|Earning above £41,001||Rate of inflation + 3%|
If you aren't earning, you will be charged interest but you will not need to pay you loan back. We’re not entirely convinced graduates who earn more should have to pay back more interest, but that’s politics....
Sometimes the rate of inflation is referred to as the ‘RPI’ or ‘Retail Price Index’. Don’t let it confuse you.
Though all this interest looks nasty, students now will pay back £540 a year less than graduates under the old system - though of course, they'll be paying more back overall, and for a longer period of time.
How much do I have to pay back?
If you aren’t earning above £21,000 you won’t have to repay anything –including if you’re unemployed and on benefits. Once you earn anything over this, you’ll pay 9% of the figure above £21,000. We've put together this table to clarify things - it may look a little daunting at first but it should make everything clear.
|Income||Monthly Repayment||Yearly Repayment||The maths explained|
|Under £21,000||Nothing.||Nada. Nowt.||N/A|
|£25,000||£30||£360||£25,000 is £4,000 more than £21,000. So you pay 9% of £4,000, which is £360.|
|£30,000||£67.50||£810||£30k is £9k more than £21k. So you pay 9% of £9,000, which is £810.|
|£35,000||£105||£1,260||£35k is £14k more than £21k. So you pay 9% of £14,000, which is £1,260.|
|£40,000||£142.50||£1,710||£40k is £19k more than £21k. So you pay 9% of £19,000, which is £1,710.|
|£50,000||£217.50||£2,610||£50k is £29k more more than £21k. So you pay 9% of £29,000, which is £2,610|
|£60,000||£292.50||£3,510||£60k is £29k more more than £21k. So you pay 9% of £39,000, which is £3,510|
Apply the method in 'The Maths Explained' column to your salary and you'll know exactly what you have to repay for however much you earn.
Note: the 9% is worked out on your earnings pre-tax, not the amount you take home after tax.
If you receive any disability benefits they will not count as ‘income’, even if they are taxable.
Money from ISAs is not considered either.
However, interest accrued on savings or investments over £2,000 is counted as income, and will be charged interest.
- Know that these conditions aren't fixed forever: a read of the loan agreement says nothing about the repayment terms staying at 9% of anything over £21,000. The government may never change this, but technically they are free too at any time. We think this is a rather disgusting state of affairs, but it is what it is.
How do the repayments work?
The Student Loans Company aren't brutes but they will want you to repay what you owe, when you can.
You have an obligation to let your employer know you have a student loan to pay off.
They'll then calculate the amount you owe and deduct it from your basic salary, which means you’ll be paying back through the tax system. You should keep an eye on your pay slips to ensure you’re repaying the right amount but other than that, you're sorted. No effort required.
If you’re self-employed, make sure you have an accountant or a calculator. Preferably an accountant with a calculator.
Being self-employed means you’re one of the chosen few who have to figure out a repayment plan by yourself. This article introduces you to the PAYE system, which should help. The rate is exactly the same for self-employed earners (meaning it's still 9% on anything earned over £21k). All we can say is... good luck.
How long will it take to pay back?
How quickly the loan is paid off is dependent on how much you earn. The Student Loans Company will send you a statement every year so you can keep on top of how much you owe. If you’re really keen, you can always keep up to date with your balance online.
You can pay off your loans earlier - it was confirmed that repaying your loans early will be penalty free. We'd recommend you only ever pay your loans off early if you can do it comfortably, without affecting your other finances. The repayment terms on a student loan are much better than the rates you'd get with a commercial loan - so put your other monetary interests first.
- If you are unable to pay off the full amount in twenty-five years, any outstanding balance is written off if you are an EU or UK student. Scottish students who must wait thirty-five years.
- If you become unfit for employment the loan may be written off if you can provide the evidence required.
- If you go bankrupt, your student loans aren’t wiped. They’re harder to shake than Sherlock Holmes - they come out through the other side and when you’re solvent you’ll have to start paying again.
- Death will kill off your student loans.
What happens if I take a break from work?
Whenever your salary drops below £21,000, the repayments stop. So if you take a pay cut or fancy a year out and are no longer being paid, there will be no repayments provided you don’t earn over £21,000.
Can I pay it back in one go?
As above: yes, you can pay back as much as you like, as long as it is above the minimum, per month without being penalised. If you wanted to pay back the full amount in one go, feel free to. Or send some as a charitable donation to us?
Leaving your course early
Obviously you need to let your University or College know that you’re leaving. Be polite about it: explain your reasons. This is common courtesy and the University may be more flexible with how much you have to pay. Of course, you must remember to let Student Finance know that you’re leaving too.
Depending on how far through the year you make it, you’ll have to pay back a percentage of the years fee:
|Term of study||Repayment % of loan|
It doesn't especially matter to the university whether it's halfway through the term, or right at the beginning - you pay according to which term you're in.
The system is fairly simple – the more education you receive, the more you have to pay back.
You’ll be expected to return your maintenance loan too.
If you’ve taken any grants, you won’t be entitled to them any further,so you’ll have to pay those back too.
It may be that you’re asked to pay the money back upfront or you may be able to set up a monthly plan; the further you are into your degree, the more likely the chance of a monthly repayment plan. Get in touch with the Student Loans Company to discuss your options further.
Will it affect my credit score?
There is no universal credit rating or credit score so this is an impossible question to answer - every lender reads a different thing in a borrower’s past. However, student loans are very unlikely to be considered by any lender when they decide whether a customer is right for them or not.
…because though we’ve included the most important information, there’s always something else to read. This government page is well worth a read.
Though it can take a while to get through, the good folks at the Student Loans Company are fairly helpful. You can give them a call on 0845 300 50 90 or, for questions on repayment, call 0845 0738 891.
The address for paper applications is:
Student Finance England
PO Box 210