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Student Finance

Student Loan repayments 2019 – your simple guide

Your Student Loan will probably be the biggest amount of money you've borrowed in your life so far. But do you totally 'get' the repayment terms you're signing up to? We're here to clue you up!

confused man with calculator

Credit: Marina Sun (formulas), Syda Productions (background, man) – Shutterstock

If you’re like half of all students, your loan agreement is a bit like your appendix: you know you’ve got one, but you’re not entirely sure how it works. And that's not a good thing!

With tuition fees well over £9,250 and interest being added all the time, your Student Loan debt is bigger than ever. With all that in mind, it’s easy to ignore the details when it comes to debt – but the reality is that the Student Loan isn’t as complicated (or as scary) as you might think.

We’ve scoured the small print and broken it down into manageable chunks, meaning you can skip to the bits you need and then get on with your life.

This page is for UK and EU students who started university any time after 1998 and used Student Finance to pay for it.

Is your Student Loan Plan 1 or 2?

It depends on when you went to uni and which country gave you the loan (usually wherever you were living before you started studying – contact Student Finance if you're not sure).

We'll be referring to Plan 1 and 2 loans a lot. So before we dive into the nitty-gritty, here's how to find out whether you have a Plan 1 or Plan 2 loan:

  • You got your loan from England or Wales: If you got your loan in or after 2012, you’re on Plan 2. If you got your loan before 2012, you’ll make repayments under Plan 1
  • You got your loan from Scotland or Northern Ireland: You’ll make repayments under Plan 1.

Is student debt like other debt?

tylrion lannister repays his debts

Credit: HBO

The news always seems to be full of stories about huge student debt and astronomical interest rates, but what no one tells you is that the Student Loan isn’t like other kinds of debt.

If you took out a Tuition Fee Loan (for course fees) and/or a Maintenance Loan (for living costs), the total amount you borrowed is your Student Loan (remember that grants, bursaries and scholarships don't have to be repaid).

However, you don’t start paying back your Student Loan until the April after you’ve left your course AND are earning above a certain amount. Even then, you'll only repay 9% of your earnings over the threshold (check out the Plan 1 and Plan 2 loan summaries for more details on this).

There are no fees attached to taking out a Student Loan, although interest is constantly being added, and the more you earn, the higher your monthly repayments will be.

The Student Loan also doesn’t affect your credit score – the infamous number that decides how generous lenders will be to you (like when you apply for a credit card or a mortgage).

But perhaps the two biggest differences between regular debt and student debt are that not only are Student Loan repayments automatically deducted from your salary before you get paid (meaning you can't miss a payment, even if you move abroad), but the total debt is also cancelled after 25 or 30 years (depending on whether you have a Plan 1 or Plan 2 loan).

The fact that the debt is eventually cancelled (and that you're unlikely to repay it in full before then) also means that, unlike most other types of debt, it may not be the best idea to make extra repayments and try to clear your Student Loan as early as possible.

Our very own Jake Butler, says:

jake butler quoteThere have been a few appeals to the government to label Student Loans and the debt as something more like a graduate tax.

The truth is that the majority of students under the current system will simply pay 9% of anything they earn over £25,725 per year for 30 years after they graduate, regardless of the size of their debt or the interest being added to it.

This sounds more like a tax than a debt, right?

Well, the recent Augar Review into university fees and funding has suggested that Student Loans be renamed as a 'student contribution system', so it's encouraging to see that those in power are starting to listen!

Jake Butler, Save the Student's Student Finance expert

While there are lots of positives about the loan, its major sticking point is the government playing fast and loose with the terms – including changing them once you’ve signed up, for better or for worse. That’s another reason to make sure you keep on top of your loan!

How is Student Loan interest calculated?

calculator and pen

Credit: eamesBot – Shutterstock

In the past you might have seen a lot of hoo-ha in the news about the government increasing the interest rate on Plan 2 Student Loans. While this is technically true, and we're against the principle of students being burdened with extra debt, there is a very important point to stress: the added debt is essentially meaningless.

As the debt is already so big, and the repayments are so small, the chances are that you'll never repay the full amount anyway. The IFS (the Institute for Fiscal Studies) estimates that 83% of students with Plan 2 loans will have some or all of their debts paid for by the government, so adding more interest to the pile is a bit of an empty gesture.

Anyway, pep talk over – now down to the details. Interest starts building from the day you take out your loan (so yes – even while you're studying), and carries on multiplying until the day you clear your balance.

You’ll repay more than you borrow, but that's just how interest works, unfortunately. That said, there’s slightly more to it than that because of a little thing called RPI.

RPI (the ‘Retail Price Index’) shows how much prices have risen (or dropped) across the UK in the past 12 months. Student Loan interest rates are based on RPI and, as RPI can go up or down, interest rates can too.

Of course, as the interest only affects the total value of the debt, and not how much you repay each month, higher interest rates only make a difference to the highest earning graduates (the ones who are likely to repay, or get close to repaying, their entire Student Loan).

The role of RPI in your Student Loan interest will depend on the type of loan you're on. Check out the interest rates for Plan 1 and Plan 2.

See how much interest your loan will cost you with our Student Loan repayment calculator!

Plan 2 Student Loans explained

plan 2 loans

It's easy to argue that students who took out loans after 2012 in England and Wales get the rough end of the deal. Not only do they pay more in fees, but you can also be charged much more in interest.

But with a higher repayment threshold comes lower monthly payments, and when you consider that the debt is cancelled after 30 years, it becomes evident that it's not quite as simple as "your debt is bigger so you've got to repay more".

What are the interest rates on Plan 2 Student Loans?

Confusingly, interest rates for Plan 2 loans can vary quite a bit. And to really keep you on your toes, it varies by two different types of circumstance.

Plan 2 interest rates while you're studying

While studying, and until the April after you’ve left your course, the interest rate on your Student Loan is RPI plus 3%.

The RPI rate is set every September using the rate from March of the same year. RPI in March 2018 was 3.3%, so from September 2018 – August 2019 your Student Loan will accrue interest at a rate of 6.3%.

Remember though, this figure changes every September!

Plan 2 interest rates once you've graduated

After graduating, the interest rate on your Student Loan is set at RPI plus anything from 0–3% depending on your earnings.

  • If you earn £25,725 or less, it's just RPI
  • If you earn over £25,725, it's RPI plus a percentage of up to 3%. This added percentage will start low and rise in line with whatever you're earning. It stops increasing when you start earning more than £46,305, at which point it's capped at 3%.

As an example, if you earn £36,015 (halfway between £25,725 and £45,725) the interest applied to your loan that year would be RPI + 1.5% (1.5% being half of 3%).

In the simplest and least number-y way possible, this means that the higher your income, the more interest will be added to your loan until you pay it off.

If you don’t reply to SLC when they ask for information or evidence, they’ll lump you with RPI + 3% no matter how much you earn. It can literally cost you if you're not on top of this stuff!

How much are Plan 2 Student Loan repayments?

10 pound notes

You’ll only start making repayments in the April after you’ve graduated. Even then you'll only have to start repaying if you're earning over the threshold.

The earnings threshold for Plan 2 loans is £25,725/year (£2,144/month or £495/week) before tax. If you earn less than that in taxable income (wages, freelancing, tips etc.), you won’t pay a penny towards your loan until you’re back above the threshold.

Once you earn more than the threshold, repayments kick in and you pay 9% on the amount over £25,725. So if you earn £29,725, you’ll pay 9% of £4,000 – which is £360/year.

Here’s what your monthly repayments could look like. If you’re self-employed, use this as a guide to how much you should be putting away for your annual tax return:

SalaryPlan 2 monthly repayment
£20,000£0
£25,725£0
£30,000£32
£35,000£69
£40,000£107
£45,000£144

Because repayments come with monthly and weekly limits as well as an annual figure, you could find that a bonus or extra shift pushes you above the threshold temporarily. Don’t worry – if your income drops after that, your repayments will too (get on to the Student Loans Company if not).

If your income rises above the monthly equivalent of a £25,725 salary (£2,144 before tax) in a given month, but across the year you earn less than £25,725, you'll also be entitled to a refund. Check out our guide to claiming a Student Loan refund for more on this.

When are Plan 2 Student Loans written off?

Plan 2 loans are written off 30 years after you first become eligible to repay (the first April after you graduate), or if you receive a disability-related benefit and can no longer work (or if you die, but let's keep this light).

If the loan is ‘written off’, that means you no longer have to make payments towards it – even if you haven't paid it all back!

Find out how much of your loan you’re in line to repay with our Student Loan repayment calculator.

What does your Student Loan statement mean?

Every so often the Student Loans Company send out a Student Loan statement to every student/graduate, and we receive loads of worried emails and messages.

There's a lot of scary (big) numbers involved on the statement, as well as a lot of confusion about what it all means. Here's our breakdown to put you at ease:

plan 2 student loan statement

We've numbered the statement above to help explain what each part means. Let's assume that this student started a three year course in September 2012 and graduated in 2015.

The statement is up to 5th April 2017 so the student would have been a graduate for two years by this point.

  1. Opening balance

    This student didn't start studying until September 2012, so in April of that year the opening balance would have been £0. On the next statement (April 2018) the opening balance will have been the closing balance from this statement (which is £42,737.51).

  2. The total loan(s) borrowed

    £37,502 was the total borrowed over the three years of study, but this number could be much more or less for you depending on where you studied, what your household income was, and so on.

    We can assume that this student borrowed £9,000/year to pay for their tuition fees (this is how much they cost at the time) and an average of £3,500/year in the form of a Maintenance Loan to cover living costs.

    This was the first statement since this student graduated, meaning it covers the entire period from when they started studying. In future the number will be £0, as the student has graduated and won't be borrowing anymore.

  3. Total interest applied

    Alongside the total amount borrowed, this is perhaps the most scary number for most students. The interest applied is explained above as well as in our guide to Student Finance.

    We can see that the interest applied is much more than the repayments made, and this is something that the majority of students will see on their Student Loan statement. The good news is that in reality there's no reason to let this number worry you too much.

    Remember that the interest has no bearing on how much you pay back. You always pay 9% of your earnings over the repayment threshold, no matter how large your debt or interest amount is!

    The truth is that the majority of graduates (unless you're a very high earner) won't pay back their loan in full before it's wiped after 30 years. If we take an extreme (and basically impossible) example, the interest amount added to your loan could be £50 million on your statement, but you'll probably never get round to paying back even a penny of it.

  4. Total repayments

    As we know, graduates pay back 9% of anything they earn over £25,725 from the April after they graduate.

    However, prior to April 2018 this threshold was £21,000 (between April 2018 and April 2019, it was £25,000).

    This statement is from before April 2018 and is showing repayments of just £18, which is 9% of £200. This means we can assume that this graduate had a salary of £21,200 per year.

  5. Closing balance

    This is calculated by adding the total amount borrowed and the interest, and then subtracting the total repayments.

    Just as you shouldn't let the interest get you down, this amount is largely irrelevant to most graduates as there's a good chance you'll never pay it all back.

Plan 1 Student Loans explained

plan 1 student loans

Did you take out your loan between 1998 and 2012 (or anytime since 1998 in Northern Ireland or Scotland)?

If so, you were probably lucky enough to have lower tuition fees – plus non-repayable grants and other free cash – you’ll have borrowed much less than those on Plan 2 style loans. Oh, and you'll have gained less interest on it, too.

Plan 1 does have one downside though – your monthly repayments will be more than those who had to take out a Plan 2 loan (we'll explain why in a sec).

What are the interest rates on Plan 1 Student Loans?

The interest rate for Plan 1 loans is set each year and is always at whichever rate is lowest: RPI, or the Bank of England base rate + 1%.

Unlike Plan 2 loans, the interest rate on Plan 1 loans is the same whether you're studying or have graduated, and isn't affected by how much you're earning either.

Right now, the Bank of England base rate is 0.75%, while RPI is 3.3% – so the current interest rate on Plan 1 Student Loans is 1.75%. You can see interest rates for previous years on the Student Loans Company website.

How much are Plan 1 Student Loan repayments?

jar of spilled pennies

You’ll only start making Student Loan repayments once you’ve left your course and are earning enough.

The earnings threshold for Plan 1 loans is currently £18,935/year (£1,578/month or £364/week) before tax. This threshold has risen in April of each year since 2012, so make sure you keep up to date with the figure. Earn less than that in taxable income (wages, freelancing, tips etc.) and you won’t pay anything back until you’re back above the threshold.

Once you earn more than the threshold, repayments kick in and you pay 9% on the amount above the threshold. So if you earn £25,000, you’ll pay 9% of £6,065, which is £546 for the year.

Here’s what your monthly repayments could look like. If you’re self-employed, use this as a guide to how much you should be putting away for your annual tax return:

Yearly salaryPlan 1 monthly repayments (6th April 2019 – 5th April 2020)
£18,935£0
£22,000£23
£25,000£46
£30,000£83
£40,000£158
£50,000£233

Student Loan repayments come with weekly and monthly thresholds, too. This means that even if you have a salary that falls below the annual threshold, receiving a bonus or completing extra shifts could mean you end up crossing the threshold and making a Student Loan repayment.

However, if at the end of the financial year (which runs from April to April) your annual earnings are still below the annual threshold, you'll be entitled to a refund. Head over to our guide to Student Loan refunds to find out how to go about claiming your money back!

When are Plan 1 Student Loans written off?

When you started uniYou got your loan from England, Northern Ireland or WalesYou got your loan from Scotland
2005/06 academic year or earlierWhen you turn 65When you turn 65
2006/07 academic yearAfter 25 yearsWhen you turn 65
2007/08 academic year or laterAfter 25 yearsAfter 30 years

If the loan is ‘written off’, that means you no longer have to make payments towards it – even if you haven't paid it all back!

Plan 1 loans can be written off if you receive a disability-related benefit meaning you can no longer work (or if you die, which you hopefully won't).

What does your Student Loan statement mean?

Plan 1 student loan statement

We've numbered the statement above in order to go explain what each part means. This student will have already graduated and is most likely a few years into making repayments by this stage.

Their statement shows what happened during the previous year.

  1. Opening balance

    This amount is the total loan that the graduate started with at the beginning of this statement period. This will be the total amount they borrowed plus interest, minus any repayments (if any have been paid).

  2. The total loan(s) borrowed

    Obviously this student has already completed their studies, so during the period that this statement covers they won't have borrowed any extra money.

  3. Total interest applied

    The interest applied is explained above as well as in our guide to Student Finance.

  4. Total repayments

    During the year (6th April 2015 – 5th April 2016) this graduate will have paid back 9% of anything they earned over £17,335 (don't forget this number goes up each year). This statement is showing repayments of just £234 (9% of £2,600), meaning we can assume that they were on a wage of £19,935 during that year.

    The more eagle-eyed among you will have noticed that the repayments made were less than the total interest added that year. This isn't necessarily something to worry about, as the loan is eventually written off anyway.

  5. Closing balance

    This is calculated by adding the total borrowed plus the interest, minus the total repayments.

What happens to your Student Loan if you move abroad?

globe world map

There are no fees for taking out a Student Loan, but penalty charges will kick in if you do a Gary Barlow/Jimmy Carr (or any other famous tax avoider) and try to avoid paying what you owe. The idea that you can ditch your loan by emigrating is just one of the many urban myths of tuition fee repayments!

In reality, Student Finance will find you and make you pay. Not in a Taken sense, but they will want their cash back.

The short story is: the Student Loan is fairly flexible. You don’t pay if you don’t earn enough, and you can overpay whenever you want – but you can’t skip repayments if you're earning enough to be making them, no matter where you are in the world.

Our complete guide to repaying your student loan when you live abroad has all the details – including repayment thresholds for different countries!

Should you pay off your Student Loan early?

Clock

If you’re thinking ahead, you may have realised that when you're old enough or earning enough to be thinking about kids, cars and mortgages, you'll also be making bigger Student Loan repayments.

As a result, you'd probably think that means it’s better to pay off your loan ASAP – but hold fire! Here are a few things to consider if you're considering paying off your Student Loan early.

  1. Your Student Loan could get written off before you're done paying

    We can't stress it enough: very few students will ever pay back the full amount that they owe – especially if you have a Plan 2 loan.

    If there’s even a half decent chance of your loan being wiped before you've cleared it, you could be throwing money away if you make extra voluntary repayments.

    You can never predict exactly how much you'll earn in the future, but there are some useful rules of thumb. If you’ve got the qualifications and drive to pursue a very high-paying career, paying off your loan early could save you money (as the interest will have less time to accrue).

    If not, don't put any spare cash towards extra Student Loan repayments – put it to better use by build your own savings pot elsewhere.

  2. Student Loan repayments are manageable

    Right at the top of this guide we said that the Student Loan is one of the better borrowing deals out there, and we stick by this.

    If the loan had come from a commercial or private lender instead, you could be landed with big fat arrangement fees, hefty penalties for missing repayments, as well as sky-high interest rates.

    Banks and commercial lenders would also expect to get paid no matter how little you earn, whereas Student Loan repayments are based entirely on what you can actually afford.

    All this adds up to make the repayments so manageable that most graduates don't even miss the cash that comes out of their monthly pay cheques to cover it.

  3. You can put your cash to better use

    You’ll probably never have terms like this again, so the key is to make the most of them.

    Rather than using any extra cash you have to pay your loan off early, you could make it grow in a savings account, invest it or even put it towards a mortgage!

    The Student Loan is the least pressing of all debts, so you'd be better off using any additional cash to help pay off more expensive debts like credit cards or commercial loans.

  4. You can't get voluntary Student Loan repayments back

    If you’re charged more than you should be for your income, you can ask for a refund (call SLC on 0300 100 0611).

    But if you choose to overpay, you can’t get the cash back if you change your mind. It also makes no difference to your monthly repayments, as they’re based on your current income, not what you owe.

    Imagine you overpay, but later find yourself skint and needing to borrow more money from another lender. It’ll probably cost you much more than what you’ve saved on your Student Loan.

    Be very sure you won’t need the cash again before overpaying!

  5. Student Loans don't affect your credit score

    As we said earlier, your Student Loan won't affect your credit score. However, what it can have an impact on is your affordability check.

    An affordability check is carried out by a mortgage lender in addition to a credit check, and it's designed to assess how much you can realistically afford to pay each month. They look at your incomings and outgoings, and as your Student Loan is a regular outgoing, it'll leave you with less money to spend each month.

    That said, the impact of your Student Loan on an affordability check will be minimal as the repayments are such a small percentage of your overall income.

  6. Student Loan repayment terms aren’t set in stone

    We keep banging on about this, but it bears repeating: Student Finance terms aren’t set in stone.

    This is pretty much the only argument in favour of making additional Student Loan repayments, as while the terms are decent enough right now, they can change at any time – and should they change for the worse, you could end up regretting not clearing your debt earlier.

5 things to do BEFORE repaying your Student Loan

checklist

  1. Check your statement and make sure you haven’t been wrongly over-charged. If you have, ask for a Student Loan refund (and put the money to better use!)
  2. Get to grips with tax (our cheat sheet can help) because only taxable income counts towards the loan threshold
  3. Squirrel money away independently instead – look for savings rates higher than the loan interest and max out your allowances (don’t forget any tax-free allowances, too)
  4. Start saving for a mortgage or pension. They might seem years away but the earlier you start, the less you have to put away each month to hit the same pay-off
  5. If you’ve got more expensive debts (like credit cards, mortgages and payday loans), compare any fees for overpaying and think about paying them off first if it saves you money in the long run.

If you’re not sure which option is best for you, or you’re struggling to get your head around the sums, ask for help. Try your university’s student money adviser or look for an independent financial adviser.

If your parents are asking about your Student Loan repayments, send them our complete parents' guide to university which has everything they need to know.

These are the facts, but what about the fiction? Allow us to debunk the Student Loan myths that so many people still believe!

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