Repaying Student Loans
The one thing assured once you've graduated is your student loan repayment when you start working and earning over the agreed threshold. If you graduate and don't earn at this level, then you won't have to pay any part of the loan back until you reach the rate set by the government.
Loan Repayments Threshold
The current student loans repayment threshold is £17,495 per year. Loan repayments start on 6th April following the year you graduated. For example, if you graduate in September, then you start repaying your student loan in the next April as long as you're employed.
Typically the repayments are taken out of your salary by your employer through PAYE, but if you're self-employed, then the self-assessment tax returns are used for repaying the loan. Alternatively, if you're working overseas, then an arrangement will need to be made with the Student Loans Company to repay your loan.
Loan Repayment Calculator
Once you're earning above £17,495, you'll need to repay 9% of the difference between your current salary above the threshold back to the government. We have a handy repayment calculator that shows you what that monthly repayment is for UK students until you repay the loan in full.
No Job = No Repayments
In the current economic climate, many graduates are finding it tough to get a job with the UK having one of the highest levels of unemployed graduates and young people in decades. The good news is that if you don't earn above £17,495 then you won't need to repay any of your student loan until that day comes. The loan is also written off after 30 years if you have any of it outstanding at that stage.
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.
How the Rate Gets Calculated
If the RPI is negative, the contingent repayment loan interest rate comes into force which is the lower of the RPI or the highest base rate of major banks plus 1%. This arrangement now only affects Plan 1 loans.
Plan 2 loans have a minimum 3% rate plus the RPI number to provide a total for repayment purposes. Lowers are in force for those earning below £42,000 per year.
Plan 1 Historical Interest Rates Table
Plan 1 loans use a simple measure of RPI, but since 2009 a fixed rate of interest now gets charged. Plan 1 loans are those taken out before September 2012.
| Period | RPI | Loan Rate | Threshold |
|---|---|---|---|
| 2007/ 2008 | 4.8% | 4.8% | £15,000 |
| 2008/ 2009 | 3.8% | Sep-Nov 3.8% Dec 3.0% Jan 2.5% Feb 2.0% Mar-Aug 1.5% | £15,000 |
| 2009/ 2010 | -0.4% | 0.0% | £15,000 |
| 2010/ 2011 | 4.4% | 1.5% | £15,000 |
| 2011/ 2012 | 5.3% | 1.5% | £15,000 |
| 2012/ 2013 | 3.6% | 1.5% | £15,795 |
| 2013/ 2014 | 3.3% | 1.5% | £16,365 |
| 2014/ 2015 | 2.5% | 1.5% | £16,910 |
| 2015/ 2016 | 0.9% | 0.9% | £17,335 |
| 2016/ 2017 | 1.6% | 1.25% | £17,495 |
| 2017/ 2018 | 3.1% | 1.25% | £17,775 |
The threshold column denotes the income level where you begin to repay the loan.
Plan 2 Historical Interest Rates Table
The new Plan 2 loans still use RPI to calculate interest rates, but with an addition of 3%. So if RPI is 0%, the interest on the loan is at 3% per year. Plan 2 loans are those taken out after September 2012.
| Period | RPI | Plus | Total |
|---|---|---|---|
| 1/9/12 - 31/8/13 | 3.6% | 3% | 6.6% |
| 1/9/13 - 31/8/14 | 3.3% | 3% | 6.3% |
| 1/9/14 - 31/8/15 | 2.5% | 3% | 5.5% |
| 1/9/15 - 31/8/16 | 0.9% | 3% | 3.9% |
| 1/9/16 - 31/8/17 | 1.6% | 3% | 4.6% |
| 1/9/17 - 31/8/18 | 3.1% | 3% | 6.1% |
The repayment threshold is the same for Plan 2 loans as with Plan 1 loans.
Loan Repayment Examples
Here are a couple of examples that you can see for yourself using our loan repayment calculator.
Loan Repayment Example 1:
John has completed his university degree and has a full-time job as a graduate trainee earning £23,500 per year. John has to repay 9% of the difference between his salary and the current £17,495 threshold which is £45.04 per month to the student loans company until he repays his loan in full.
(Calculation: £23,500 less £17,495 equals £6,005. 9% of £6,005 divided by 12 is £45.04).
Loan Repayment Example 2:
Jane 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 part of her student loan off at present although interest incurs until the loan becomes fully repaid.