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UK student loan repayment: a step-by-step guide

By Maurizio Kayonjo Feb 21, 2024
Students from Corpus Christi College at Cambridge University on their graduation day. Photo: Bav Media/Shutterstock

Student loans are provided by the government to help students cover the cost of tuition fees and living expenses. Whilst that might seem straightforward they actually vary a lot depending on when you start university. To help you cut through the complexities here’s our step-by-step guide.

Types of repayment plans and overview of plans

When you will start repaying and stop repaying your loan varies depedning on when and where the loan was taken. Here’s a quick overview:

Plan 1: For courses started before September 2012 in England or Wales, or before 2013 in Northern Ireland.
Repayment threshold: £19,895 (2023/24).
Plan 2: For courses started on or after September 2012 in England or Wales.
Repayment threshold: £27,295 (2023/24).
Plan 4: For degrees started in Scotland after September 1998.
Repayment threshold: £25,000 (2026/27).
Plan 5: New loans in England from August 2023 onwards.
Repayment starts April 2026.

For Plan 1 loans taken before September 2006, write-off is at age 65. Plan 2 loans are written off after 30 years.
Borrowers can find their plan type by checking their online account with the Student Loans Company.

Interest rates and the importance of understanding them

Student loan interest rates are applied differently depending on the type of loan and the borrower’s circumstances. Higher interest rates lead to a faster accumulation of interest on the loan balance, increasing the total amount repaid over time.
For Plan 1 loans, the interest rate is typically set at the lower of the Bank of England base rate plus 1%, or the rate of inflation (RPI).
For Plan 2 loans, the interest rate is based on the Retail Price Index (RPI) plus up to 3% depending on the borrower’s income, with higher earners paying a higher rate.

It is important to note that while higher earners may pay larger amounts each month, they often pay off their loans more quickly due to their larger repayments.
This can result in them paying less interest overall compared to middle earners, who may take longer to repay their loans and therefore accumulate more interest over time.
This argument has led to discussions about the fairness of tuition fees, as middle earners might end up paying more over the lifetime of their loan.

The interest rates for Plan 4 and Plan 5 loans also differ and are based on specific criteria.
The impact of these interest rates on the overall loan balance can be significant, especially for those who take longer to repay their loans.

Factors to consider

To effectively manage their student loan repayments based on individual circumstances, borrowers should consider the following factors:

Career prospects: Assessing future career prospects and potential earnings is important.
Borrowers should consider how their income is likely to change over time and how this will affect their loan repayments.
Personal financial goals: Understanding personal financial goals, such as saving for a home, investing, or other financial commitments, can help borrowers prioritise their financial resources effectively.
Interest rates and loan terms: Being aware of the interest rates and terms of the loan is essential for understanding the total amount repaid over time and the impact on long-term financial planning.
Repayment thresholds: Different loan plans have varying repayment thresholds, and borrowers should be aware of these thresholds to anticipate when repayments will commence based on their income.

By considering these factors, borrowers can have a better understanding of how student loan repayments work, adjusting their strategy to fit their individual circumstances, career progression, and financial objectives.

Reliable resources

Here are some reliable resources where borrowers can seek additional assistance or clarification on student loan repayment:

NerdWallet: Offers advice on student loan repayment, including credit counselling and finding reputable help organizations.
Government website: The UK government’s site provides a detailed guide on student loan terms, conditions, and the repayment process.
Student Loans Company (SLC): SLC’s website outlines the repayment process, including when and how to start repayments and updating contact details.
MoneySavingExpert: Features a dedicated section on student loans with guidance and a finance calculator.
Citizens Advice: Provides information on understanding loan statements, handling repayment struggles, and explaining overpayments.

By staying informed about the student loan repayment process, borrowers can make well-informed decisions, ensure compliance with their obligations, and effectively manage their financial responsibilities.

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