Payback time? Tips for paying back your student loan

These days – for many of us anyway - student loans are as much a part of education as coursework. But whether you already have one (or more) or are thinking about taking one out, do you still have questions about when you’ll pay the loan back (and by how much at a time)? If so, this quick guide might help answer a couple of them.

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First things first. Depending on where in the UK you were living when you took out the loan (and in which year), your repayment plan may be different. To make things clearer, we’ve split the guidance into Plan 1 and Plan 2.

Plan 1: If your loan was taken out in Scotland or Northern Ireland (at any time) OR in England or Wales before 12 September 2012.

When you’ll start paying it back and how much

With this plan, you don’t start paying back your loan until the April after you graduate, and only once you’re earning over £17,495 a year (£1,475 a month) before tax. As soon as your income goes over that amount, the figure you’ll pay back will be 9% of whatever amount you earn over and above £17,495.

If you’re on a company’s payroll, the amount will be taken off your pay automatically. If you’re self-employed, you’ll complete an HM Revenue & Customs self-assessment form (opens in a new window) .

“Student loans are as much a part of education as coursework”

How to calculate the monthly repayment amount

  • Take £17,495 away from your annual salary before tax
  • Work out 9% of the remainder
  • Divide that figure by 12
  • Round down to the nearest pound

For example, if you were earning £30,000 a year:

  • £30,000-£17,495 = £12,505
  • 9% of £12,505 = £1125.45
  • £1125.45 divided by 12 = £93.80
  • Rounded down, your monthly repayment would be £93

What’s the interest rate?

It has varied over the years, from a high of 4.80% for 2007/08 to 0.00% on 1st September 2010. The average between 1998/99 and today has been 2.23%. There’s more detail about interest rates on the Student Loans Company site (opens in a new window).

Plan 2: If your loan was taken out in England or Wales on or after 12 September 2012.

When you’ll start paying it back and how much

With Plan 2, you don’t start paying back your loan until the April after you graduate, and only once you’re earning over £21,000 a year (£1,750 a month) before tax. As soon as your income goes over that amount, the figure you’ll pay back will be 9% of whatever amount you earn over and above £21,000.

If you’re on a company’s payroll, the amount will be taken off your pay automatically. If you’re self-employed, you’ll complete an HM Revenue & Customs self-assessment form.

How to calculate the monthly repayment amount

  • Take £21,000 away from your annual salary before tax
  • Work out 9% of the remainder
  • Divide that figure by 12
  • Round down to the nearest pound

For example, if you were earning £30,000 a year:

  • £30,000-£21,000 = £9,000
  • 9% of £9,000 = £810
  • 810 divided by 12 = £67.50
  • Rounded down, your monthly student loan repayment would be £67

What’s the interest rate?

From 6 April the year after you finish/leave your course - until the loan is repaid in full - the rate is variable depending on your income. It goes from just the current Retail Price Index (currently 0.90%) when your income is £21,000 or less, up to RPI+3% (3.90%) when your income is £41,000 or more.

A bit about making extra repayments

Can I pay in extra?

Yes, you can, and there’s no charge for paying more (or ‘overpaying’) in part or in full. See the Student Loans Company’s payments page (opens in a new window) for details.

Should I overpay (if I can)?

Whether you should or shouldn’t really depends on factors like any other debts you may have. This article (opens in a new window) from Money Saving Expert goes into the Pros and Cons and could help you decide what to do.

Source of figures: studentloanrepayment.co.uk (opens in a new window)

All information was correct at time of publication

This blog is a bit of fun and not intended to influence your decisions in any way. The content of the blog is reliable at the time of publishing, but we can’t guarantee that it is neither error nor omission free, beyond our knowledge. The links are there for you to explore if you wish, but we don’t have any connection with the third party sites, nor responsibility for them or their content.