Guide to student loans

Guide to student loans

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Student Loans are complicated, and many graduates are often confused or unsure about how and when they will have to start paying back their loan. Don't worry - we've assembled all the pertinent information.

Once you've found a job and begin earning over £21,000, your student loan payments will be deducted directly from your pay. Make sure you alert your employer that you have a student loan to pay off so this can be factored in when getting you on the payroll.

Once you begin earning over £21,000, your student loan payments will be deducted directly from your pay.

The amount that you need to pay off is the total of tuition fees and maintenance loans, but not any bursaries you received during your studies. The payments are charged with a very low interest rate. Without getting too bogged down in the economics of student loans, RPI is Retail Price Index and is published monthly by the Office of National Statistics to account for the price of a basket of retail goods and essential services. This RPI is the interest that student loans are run against, so the amount you owe does not depreciate over time.

There were significant changes implemented at the start of the 2012/2013 academic year, so the repayment information is not the same across the board.

Student Loan Jargon Explained

Income Contingent Loans: These are the two types of loans issued after 1998. Plan 1 refers to loans issued until September 2012 (£3,465 Tuition fees). Plan 2 are those loans issued from September 2012 (£9,000 tuition fees).

Interest Rate: The small interest rate added to your student loan is to make sure you are paying the right amount against inflation.

Mortgage-Style Loans: Mortgage-style loans are those issued between 1990 and 1998.

Threshold: The Threshold is the point from when you will begin paying back your loan. For those that took out loans before the September 2012 change the rate is currently set at £16,910. For those that took out their loan during or after September 2012 the threshold is set at £21,000.

Started University Before September 2012

Graduates who began their studies before September 2012 will have been paying tuition fees of around £3,465 per year.

To work out the amount of these repayments, the Student Loans Company takes 9% of your annual salary over a set threshold. As of April 2014 this threshold stood at £16,910. The amount is then deducted throughout the year, usually from each pay period (similar to Tax and National Insurance deductions). The repayment plan is referred to as Income Contingent Plan 1 on the Student Loans Repayment website. Graduates will not start paying their student loan back until the April after they graduate.

Student Loan repayments pre-September 2012

Started University During or After September 2012

Students that started in September 2012 or after were subject to the new tuition fees. These tuition fees were capped at £9,000, which the majority of universities charged their students. Graduates who took out student finance under this regime are expected to pay back what they earn under a fairer system.

Repayments for these loans will not start until you are earning over £21,000 a year and will not begin until the April after you graduate. The repayment plan is referred to as Income Contingent Plan 2 on the Student Loans Repayment website.

The Income Contingent Plan 2 loans are paid back at the same rate of 9% over the threshold of £21,000. Similarly to the old system of loan repayments, contributions are taken each month after being worked out from your yearly salary.

Student Loan repayments post-September 2012

How Much Do I owe?

To find out exactly how much you owe the Student Loans Company, you need to log in to the Student Loans Repayment website and use the Customer Reference Number given to you when you applied for student finance. Once you have logged in, they will have your outstanding balance, along with additional ways you can choose pay back your student loan. These additional contributions can be done with one-off voluntary payments or by setting up a direct debit to make additional payments.

The amount you owe is subject to a small amount of interest, which is worked out in one of two ways: either along the lines of the Retail Pricing Index or 1% above the highest base rate of a nominated group of banks. For example, the current rate for pre-2012 loans is set at 1.5%, but this could change if the low interest cap is altered.

The amount you owe is subject to a small amount of interest.

The whole aspect of interest around student loans is very complicated and involves some quite baffling economics. However, the point of the interest is to ensure that the amount you pay back retains its value and does not depreciate over the years you take to pay it off.

For post-September 2012 loans, the interest is worked out using the UK's cost of living, or the RPI index. This is also to ensure that loans are paid off to the right amount against inflation and does not decline as the value of money decreases. Graduates will have their student loan written off after a certain length of time. For those who took out their student loan before the 2006/2007 academic year, their loan will be written off when they reach 65 years of age. Graduates who took out their loan during or after 2006/2007 will have whatever is outstanding written off after 25 years since they became eligible to pay it back. For those that took out their loan under the post-September 2012 regime, it is 30 years until the loan is written off.