Student Loan Debt

Overview

Making the decision to go onto further education marks milestone moment for many.

However the quest for knowledge comes with a price tag attached, with students both young and mature often forced to take student loan debt to cover costs.

How much is the average student loan debt?

The average student loan debt in the UK is around £35,000. The amount required to be repaid differs from person to person and depends on individual earnings.

What is student loan debt?

Student loans are the main method of direct government support to offer financial support to those in higher education. They are used to pay for a range of different things, such as:

  • Tuition fees (the cost of the course)
  • Living costs (maintenance grants are available to help students pay for accommodation and travel costs)
  • Other costs (from books to study equipment like laptops)

Funds granted in a student loan are loaned at a subsided rate to help students studying in England, Wales and Northern Ireland.

Tuition fees are paid for Scottish students.

Student loan debt must be repaid when you meet a certain earnings threshold.

When do I start making student loan repayments?

It can be easy to forget that you need to cover student loan payments when you graduate.

While you won’t be required to pay outstanding student loans when on a low income, if your salary increases you’ll be required to repay student debt.

Defaulted student loans can have an impact on your credit score so it’s important to be aware of when your repayment period will begin.

Depending on the type of student loan you have, you’ll not be required to repay your loan until you reach the earnings threshold of your plan.

After that, the amount you repay will vary depending on the type of student debt you’ve taken on.

Plan One student loan

You’ll start repaying this student loan debt as soon as you hit the repayment threshold of £1,657 per month.

You’ll currently pay a 1.25% interest rate on a Plan One loan.

Plan Two student loan

Your repayment term will begin when you reach an earnings threshold of “2,274 per month.

How much interest you pay on a Plan Two student loan can vary. While you’re studying, interest rates sit at 4.5%. This is made up of the Retail Price Index (RPI) plus up to 3%.

This rate applies until April 5 after you graduate or leave your course, or for the first four years of your course for part time students unless the Retail Price Index changes.

After that, your interest rate will depend on your income in that tax year. If you have more than one job your interest rate will be based on your combined income for both jobs.

If you’re self employed, you’ll pay tax using your Self-Assessment tax return.

Plan Four student loan

Your repayment period will begin when you reach an earnings threshold of £2,083 per month.

You currently pay interest of 1.25% on a Plan Four student loan.

Postgraduate Loan

The repayment threshold for a postgraduate loan is currently £1,750 per month.

Graduate students who go onto to study at a postgraduate level and take on more student debt will pay an interest rate of 4.5% on postgraduate loans. The interest rate is usually the Retail Price Index plus 3%.

Depending on the type of student loan you have, you’ll not be required to repay your loan until you reach the earnings threshold of your plan.

How much do student loans cost?

Repaying student debt can seem complicated due to the various rules surrounding the student loan system.

The amount you’ll pay will depend on how much you earn and what student loan plan you’re on. It’s important to be aware that each type of student loan will have a different repayment threshold depending on your income. However, generally speaking you’ll pay:

  • 9% of the amount you earn over the threshold for plans one, two and four
  • 6% of the amount you earn over the threshold for the Postgraduate Loan
  • If your income is below the threshold you won’t make a contribution

As mentioned above you’ll pay interest on your student loan debt. This is added to loan loan from when you get your first payment over and above the earnings threshold.

How do I pay the Student Loans Company?

Student loan repayments are taken straight from your wage through the PAYE system or by Self-Assessment if you’re self-employed.

It’s important to be aware that payment will be taken towards the loan amount after tax and National Insurance.

You should also be aware that even if your annual salary is below the repayment threshold but you occasionally earn enough to take you into the monthly repayment plan, you may find the Student Loan Company will take the occasional contribution to your loan.

What happens if I can't pay my student loan debt?

If you’re unable to make your student loan debt repayments it’s important to act quickly.

Student finance might just seem like a natural part of your college or university experience but you should remember you have signed a legal agreement to repay what you owe.

If you don’t stick to your repayment terms, the Student Loans Company has the right to accelerate your debt. That means they can get a court order for any outstanding loan payments to be paid in one payment – including interest rates.

As your student loans are paid directly from your wages, the Student Loans Company doesn’t need to turn to debt collectors to enforce payment. The outstanding student loan repayments will be taken directly from your account which can make it more difficult to pay household debt and other bills.

Can I repay my student loan debt quicker?

If you find yourself with extra disposable income and your budget allows, you can make additional payments to your student debt.

These payments will be made in addition to the repayments you are required to make when your income is over the threshold amount.

You should only make extra payments towards your student loan if you think you can pay the full remaining balance by the end of the term. This is because your loan will be written off at the end of the term.

How we helped Paige

It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.

Paige , IVA Customer

When will student loan debts be written off?

You’ll eventually be granted loan forgiveness for the remaining balance on your student loan.

That means your student loan debt will be written off, however, it depends on what plan you’re on.

Plan One

Loan forgiveness for a Plan One loan depends on when you took out the loan:

  • If you took it out in the academic year between 2005 and 2006 the remaining debt will be cleared when you’re 65.
  • If you took it our in the academic year 2006 and 2007 the remaining debt will be cleared 25 years after the April you were first due to pay.

Plan Two

Plan Two student loan debt will be written off 30 years after the April you were first due to pay.

Plan Four

Much like Plan One student loans, Plan Four debts are cleared depending on when you took out the debt:

  • If you took it out in the academic year between 2005 and 2007, or earlier, the outstanding student loans will be cleared when you’re 65 or 30 years after the first April you were first due to pay – whichever comes first.
  • If you took it out in the academic year between 2007 and 2008, or later, the remaining debt will be written off 30 years after the April you were first due to pay.

Postgraduate loans

When your loan debt will be cleared will depend on where you live in the UK.

  • England and Wales: 30 years after the April you were first due to pay
  • If you’re postgraduate student from Northern Ireland you’re on Plan One
  • If you’re a postgraduate student from Scotland you’re on Plan Four.

You’ll eventually be granted loan forgiveness for the remaining balance on your student loan.

What if someone with student loan debt passes away?

If a person paying student loan debt passes away – either a graduate student or someone undertaking undergraduate courses – the Student Loans Company Company will cancel the person’s student loan.

You should let the Student Loan Company know about the situation and provide evidence (such as an original death certificate) as well as the person’s customer reference number.

Do I need to pay student loan debt if I'm unable to work?

Your student loan debt can be cancelled if you’re unable to work due to permanent disability.

You’ll need to provide evidence of the following disability-related benefits to be eligible:

  • Personal Independence Payments
  • Disability Living Allowance
  • Industrial Injuries Benefit
  • Severe Disablement Allowance

If you’re unable to work you should write to the loan company to ask for you loan to be cancelled based on the grounds of disability.

You’ll need to provide your customer reference number as well as photo copies of the following letters:

  •  notice from a doctor, consultant or psychiatrist which says you’re ‘permanently unfit for work’, dated within the last 6 months.
  • the benefits agency which shows you get a disability-related benefit, which must be the most recent letter of assessment and include all pages.

Where can I find help with student loan debt?

If you’re worried about student debt and are in need of support you should seek support as soon as possible.

Outstanding student debt can be taken directly from your bank account – including interest – which could make it more difficult to manage other daily payments.

If you’re looking for guidance to repay your student finances, talk to Your Debt Expert on 0800 082 8086

 

Where can I get more advice on Student Loan Debt and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started