University can be a great chance to develop. This can be both in the academic sense, as you are studying at a much higher level than before. Yet it can also be in yourself as a person due to the new experiences and things you learn outside of your studies. However, after you finish your 3 years or maybe even more of your degree, you may find that it has quite a long-lasting impact that on you. While this may be positive in some aspects, financially this will probably not be the case. This is due to the hefty student loans that you’ll now probably have to pay back. You may find yourself wondering how it all even works.
Continue reading to learn more about repaying student loans and how the process all work. In this article, you will learn more about how it works, what the different plans means, when you start repaying and what happens if you don’t.
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How does a student loan repayment work?
Student loans can be hard to understand. Until you actually have to repay them, it can be hard to tell if they work in a similar way as normal loans or if they have an entirely different system altogether.
In the UK, student loans are unlike regular loans in that they are automatically deducted from your salary after you reach a certain pay threshold. This will be covered in a bit more detail further down in the article.
The amount you will have to pay will depend on how much you initially got. This means that it will be your tuition fees as well as however much you got for your maintenance loan. This also applies if you got a postgraduate loan.
Like a regular loan, interest is charged on student loans to add to the amount you have to pay back. On top of that, as your repayments are based on a percentage of your income, you will have to repay larger sums at a time if you make more. As of 2022, the percentage is 9% of your earnings.
To learn more about how it all works, check out this article by Save The Student.
What is Plan 1 or Plan 2 loan repayments?
How you are repaying your student loan will work exactly will depend on which repayment plan you’re on. In the UK, there are 4 plans. These are Plan 1, Plan 2, Plan 4 and the plan for repaying postgraduate loans.
In England, Wales and Northern Ireland, Plan 1 and Plan 2 are used for undergraduate student loans. Whereas in Scotland, Plan 4 is followed, to learn more about this plan, please refer to the section below. In all 3 of these plans, you will have to repay 9% of your income over their respective thresholds.
Plan 1 is the main plan used for Northern Irish students who started either an undergraduate or postgraduate degree from September 1998. Differently, in England and Wales, those on Plan 1 would have started their undergraduate course before September 2012.
For English and Welsh students, Plan 2 is the main plan that has been used for those who started their undergraduate degree after September 2012. However, it is also used for those who have taken out an Advanced Learner Loan from August 2013. As well as this, from September 2022, students who took out a Higher Education Short Course Loan will also have their repayments as part of Plan 2.
To learn more about these plans, check out this governmental guide.
How do student loan repayments work in Scotland?
In Scotland, the student loan repayment plan works a little differently to that of England, Wales and Northern Ireland. This is due to the fact that each UK country has its own student finance organisation and so their policies on student loans, as well as their repayments are all slightly different, with Scotland’s being a little more noticeable.
The Scottish student loan repayment plan is called Plan 4. This applies to any undergraduate or postgraduate student or former student who is a Scottish resident from 1998, when this repayment plan was introduced.
Plan 4 is very similar to Plan 1 and Plan 2 for England, Wales and Northern Ireland, to learn more about this please refer to the above heading. The main difference is to do with the interest rates and the thresholds for when you have to start repaying.
Like Plan 1 and Plan 2, the percentage of your income that will go into your repayments is 9% of your earnings over the threshold as of 2022. However, the salary threshold is £25,375 and the interest rate is at 4%.
To learn more about Plan 4, check out this governmental guide.
When do you start paying back your student loans?
Student loan repayments can feel really complicated even when you do know how it works. This is especially as the process itself doesn’t make it entirely clear when you will have to start making your repayments.
In the UK, student loan repayments are based on your income and the threshold of your plan. This means that you will have to start making repayments on your student loan when your weekly or monthly income reaches a high enough point based on whether you follow Plan 1, 2, 4 or the postgraduate loan repayment plan.
In terms of exact timing, depending on what income you get after finishing your degree, this can be as early as the April after you have left your course.
However, you may end up having to start repaying before you have even finished your course. This is because repayments will instead start in the April 4 years after your course started if it is longer than this. This may be the case if you are studying part-time or studying a full-time course, such as a medicine degree, that is naturally over 4 years.
To learn more about when you have to start making your repayments on your student loan, check out this governmental guide.
Student loan repayment threshold 2022/23
Knowing exactly when you have to start repaying your student loan will depend on which plan you are on. This is because they each have different income levels that you need to reach before you have to start making your repayments.
These income thresholds change each year on the 6th April. This means that even if you are getting the same income, it is possible for you to go below or above the threshold as it changes.
Look at the following table to see the threshold level and interest rate for each plan for 2022/23.
|Plan||Income threshold||Interest rate|
|1||Over £388 per week, £1,682 per month or £20,195 per year||4%|
|2||Over £524 per week, £2,274 per month or £27,295 per year||6%|
|4||Over £487 per week, £2,114 per month or £25,375 per year||4%|
|Postgraduate loan||Over £403 per week, £1,750 per month or £21,000 per year||6%|
How do you pay back your student loans?
As complicated as making these repayments can seem, this doesn’t quite have to be the case. This is because if you are employed, your student loan repayments will simply be taken from your salary in the same way that tax and National Insurance are.
Despite this, it is also possible for you to make extra repayments or to pay it off early. This can be done through bank transfer, online or by cheque. To learn more about this, check out this detailed guide by the government.
If you are self-employed, repayments can be a little more tricky. However, you will have to contact HMRC and arrange how you will make repayments. This will be done at the same time as paying tax.
To learn more about how you make repayments, check out this governmental guide.
How do you avoid paying back your student loan?
Wanting to avoid paying back your student loans is likely a shared feeling amongst the many who have these repayments. However, actually being able to avoid these repayments may not actually be a good thing.
This is because the main way to avoid paying is to not be making enough income to meet the threshold to be able to do so. You may be able to do this if your job provides a low salary, if you work as a volunteer or even if you go travelling and don’t make enough to meet the threshold.
While it may feel great to avoid having to repay this debt, not having enough income to do so, may also bring about a range of repercussions. Due to this, I feel that being able to avoid repaying your student debt isn’t exactly something you should aim to do.
If you are unable to work, such as due to a disability, you may also be able to avoid repaying your student loans. In this case, you will need to inform your student finance organisation for this to be decided.
To learn more about how to avoid repaying your student loans, check out this Think Student article.
What happens if you don’t pay back your student loan?
Not being able to fully repay your student loan isn’t something that you need to worry about. This is due to it being quite common amongst former students due to the high interest rates and the process of it all.
In the UK, after 30 years, your student debt will be wiped away and you will no longer have to pay it off. If you are unable to fully pay it off, there is no penalty and there will be no effect on your credit score.
In fact, it is estimated that about 83% of those with student loans will be unable to fully pay it off before it is wiped. You can learn more about all this by looking at this Think Student article.