If you’re going to university, you’ll almost certainly end up getting a student loan of some sort. That’s no bad thing, they’re generally the best and cheapest way to finance further education. Working out how much you’ll repay is tricky, because it depends on a host of other factors, including what you go on to earn and which plan you’re on.
Here’s what you need to know.
When you apply to university or college, there are two main sets of costs that are typically covered by loans. The first set is tuition fees, which cost a maximum of £9,250 a year. Scottish students studying in Scotland have their tuition fees covered, but everyone else in the UK will have to pay something.
The second set is maintenance fees, which cover some of the costs of living. How much you can borrow varies enormously depending on which university you choose, where you live while studying and crucially how much your parents earn.
If you’re in Scotland, Wales or Northern Ireland, you’ll typically have a mixture of grants – which don’t have to be paid back, and loans – which do. If you’re in England, the whole of your loan is repayable in theory, although most people only pay part of it back in the end.
There are also grants and bursaries available to cover the cost of tuition fees for certain groups - for example, people studying engineering or science degrees who have signed up to be part of the armed forces.
How much you pay, when you start paying it, and when the debt is wiped all depend on which plan you’re on…
There are four plans in the UK. Plan 1, Plan 2, Plan 4 and Postgraduate Loan.
An English or Welsh student whose course started before 1 September 2012
A Northern Irish student whose course started on or after 1 September 1998
An EU student whose course started in England or Wales between 1 September 1998, and 1 September 2012
An EU student whose course started in Northern Ireland on or after 1 September1998
An English or Welsh student whose course started on or after 1 September 2012
An EU student whose course in England or Wales started on or after 1 September 2012
Someone who took out an Advanced Learner Loan on or after 1 August 2013
A Scottish student who started a course on or after 1 September 1998
An EU student who started a course in Scotland on or after 1 September 1998
An English or Welsh student who took out a Postgraduate Master’s Loan on or after 1 August 2016
An English or Welsh student who took out a Postgraduate Doctoral Loan on or after 1 August 2018
An EU student who started a postgraduate course on or after 1 August 2016
When you start repaying depends on which plan you’re on. Once you’ve used the guide above to figure out which one applies to you it’s easy to work out.
There are weekly, monthly and yearly earnings thresholds, so if you earn more than that, you’ll start making payments. Repayments are between 6% and 9% of anything you earn over the threshold.
|Weekly earnings threshold||Monthly earnings threshold||Yearly earnings threshold|
These are the thresholds that are currently in place, but they can be changed by the government.
Bear in mind that all student loans get wiped after a certain number of years so you’re unlikely to pay back everything you borrowed unless you are a very high earner or have a particularly small loan.
The easiest and most sensible way to think about student loans is as a graduate tax that you only pay when you’re earning over the threshold, and that only lasts a set number of years.
You pay 9% of anything you earn over the qualifying amount if you’re on Plans 1, 2, and 4. Postgraduate plan borrowers pay 6% over the threshold. This ends up being a really small amount for people on typical salaries.
For instance, someone on Plan 1 who earns £27,000 a year would pay back just £53 a month. Someone on Plan 2 who earns £21,000 would pay just £11 each month.
To work out your exact repayments, deduct the weekly, monthly or yearly threshold from your earnings before tax over an equivalent time period. Then calculate 9% of what’s left. That’s your repayments per week, month or year.
You’ll keep making repayments until your loan is wiped by the government or it’s totally paid off.
If your earnings drop below the threshold, you won’t pay a penny until they rise above it again. If you never earn over the threshold, you won’t have to pay anything back at all.
Once again, this depends on what plan you’re on.
Plan 1 loans get written off when you’re 65 if you took the loan out before the 2005-6 academic year
Plan 1 loans taken out from 2006-7 onwards get wiped 25 years after the April you were due to start paying
Plan 2 loans are written off 30 years after the April you were first due to repay.
Plan 4 loans get wiped either when you’re 65 or 30 years after the April you were due to start paying
No. Student loans don’t affect your credit rating or history. And if your income drops below the threshold, you stop paying with no penalties. If you’re applying for a mortgage, the repayment amounts will be factored into affordability calculations.
If you are a higher earner who’s likely to pay back the full loan before it’s wiped, you may want to make early repayments to reduce the interest you pay. But for most people, this doesn’t make sense as they’ll never repay the whole loan, let alone any interest. Find out more with the following guide.
Should I pay off my student loan early?