Repaying Student Loans
The one thing assured once you have graduated is your student loan repayment once you have started working and earning a certain amount. If you graduate and don't earn at this threshold then you won't have to pay any of the loan back until you reach the rate set by the government.
Loan Repayments Threshold
The current student loans repayment threshold is £15,000 per year. Loan repayments are made on 6th April following the year you graduated in so if you graduate in September you start repaying your student loan in the next April so long as you are employed.
Normally the repayments are taken out of your salary by your employer through PAYE but if you are self employed then the self assessment tax returns are used for repaying the loan. Alternatively if you are working overseas then an arrangement will need to be made with the Student Loans Company to repay your loan.
Loan Repayment Calculator
Once you are earning above £15,000 you will need to repay 9% of the difference between your current salary above the £15,000 threshold back to the government. We have a handy repayment calculator that shows you what that monthly repayment is for UK students until the loan is repaid. This is also something you can not get out of.
No Job? No Repayments
In the current recession many graduates are finding it tough to get a job and the UK has the highest level of unemployed graduates and young people in decades but the good news is that if you don't earn above £15,000 then you won't need to repay any of your student loan until that day comes. The loan is also written off after 25 years if you have any of it outstanding.
Current and Historical Interest Rates
You will still be charged interest on your loan until you repay it in full. The interest rate is calculated based on the retail price index (RPI) and set a year in advance. Because the RPI has been negative the contigent repayment loan interest rate has come into force which is the lower of the RPI or the highest base rate of major banks plus 1%.
Changes in the base rate and negative RPI have moved interest rates on student loans radically and have a "capped" level at several points in late 2008 and early 2009. The interest rate for income contingent Student Loans was reduced a number of times:
- from 1 September to 4 December 2008, the interest rate was 3.8%
- from 5 December 2008 to 8 January 2009, the interest rate was 3%
- from 9 January to 5 February 2009, the interest rate was 2.5%
- from 6 February to 5 March 2009, the interest rate was 2%
- for 6 March to 31 August 2009, the interest rate was 1.5%
- From 1 September 2009 to 31 August 2010, a zero per cent interest rate will apply to income contingent Student Loans.
Loan Repayment Examples
Here are a couple of examples that you can see for yourself using our loan repayment calculator.
Example 1: - John has completed his university degree and has a full time job as a graduate trainee earning £23,500 per year. John will have to repay 9% of the difference between his salary and the current £15,000 threshold which is £63.75 per month to the student loans company until his loan is repaid. (Calculation is: £23,500 less £15,000 equals £8,500 - 9% of &poud;8,500 divided by 12 is £63.75)
Example 2: - Janes has also completed her degree and gets a job earning £12,750 per year in an apprentice scheme run by her local company. Because her earnings are below the threshold she doesn't need to pay any of her student loan off at present although interest will still be added at the current rates until the loan is repaid in full.