Last year, the government announced several significant changes to student loan plans. You may have noticed that your own loan deductions have changed since April 2023, or that a new plan will be implemented for this year’s students. In this blog we discuss how these updates will affect you.
Current Student Loan Schemes
Currently, there are four student loan repayment schemes. The scheme you pay through is dependent on criteria such as the country where you are based and when you started your studies. The current schemes are:
- Plan 1 – Applies to all students, UK-wide, whose loans were taken before September 2012.
- Plan 2 – Applies to English and Welsh borrowers from September 2012.
- Plan 4 – Student Award Agency Scotland Loans
- PGL – Postgraduate loans for England and Wales (PGL can also be called Plan 3)
You will only make repayments when your rate of pay passes the annual threshold. This, and the rate of deduction, is dependent on your loan scheme. The thresholds applied from April 2023 are in the table below:
|Loan Plan||Previous Annual Threshold||Annual Threshold from April 2023||Rate of Deduction|
A new student loan scheme called Plan 5 will be introduced for English individuals taking student loans from 1st August 2023, in place of Plan 2. The deduction rate shall remain at 9% of pay, but the threshold shall fall to £25,000 per year. This works out to £2083 per month, or £480 per week. This threshold shall remain until April 2028, after which it shall increase in line with the retail price index. This scheme will also increase the repayment period so that loans will be cleared after 40 years, rather than the usual 30.
Students on Plan 5 will not be expected to make payments until April 2026 at the earliest. This includes students who leave their courses early. The scheme will only apply to English borrowers as Welsh students shall remain on Plan 2.
If you were paid a salary of £26,000, you would only need to repay the 9% on the £1000 exceeding the threshold. This equates to £90 per year. If your salary was £30,000, you would be paying £450 per year.
By using this rule of £90 to pay per £1000 over the threshold you will be able to predict the contributions you are due to pay per year.
How are Student Loans Paid?
If you are employed, repayments are taken from your salary by your employer, much like tax and National Insurance. The amount deducted per pay period will be displayed on your payslips.
If you are employed but also complete a tax return you must include the total amount paid during the tax year. This figure will be reflected on a P60.
If you are self-employed the amount you owe will be calculated and included on your Self Assessment, and you will pay the amount at the same time as your tax. The figure can either be calculated before submission by your accountant, or by HMRC once it is submitted.
If you are self-employed and in need of advice, or if you are unsure if you need to complete a Self Assessment, please review the information on our page.
How to Apply for Student Loans
HMRC offer a step-by-step guide on applying for student loans. It will allow you to check if you are eligible and how large your loan can be. It also gives advice on reapplying during your study (which must be done each year of your course) and what happens with payments once you leave education. This guide can be found here.
- “Will my student loan go on my credit file?” – No, it doesn’t. This means that taking out student loans will not affect your ability to apply for a mortgage, for example.
- “Is there interest on my loan?” – Yes, for Plan 5 loans the interest rate will be set at the rate of inflation for the current year.
- “Does how much I owe on my loan affect how much I pay?” – No, as the amount you pay is solely related to your earnings. The remaining balance is not a factor.
- “Can I make additional payments towards the loan?” – Yes. Additional payments can be made at any time during the repayment period; however, these payments cannot be refunded. You can find more information from HMRC here.
- “Will I need to make repayments if I move abroad?” – Yes, you must still pay 9% on all earnings exceeding the currency equivalent of £25,000.
- “When will I start repaying my student loan?” – If you are earning over the annual threshold, repayments will start the April after you leave university, but Plan 5 repayments will only start from April 2026.
- “Are student loan contributions calculated before or after tax?” – Before tax. They are calculated the same way as National Insurance contributions.
- “Will student loan repayments affect my pension contributions?” – The student loan repayment will be deducted before the pension contribution is calculated.
If you are usure of how your loan will affect your pay, please do not hesitate to contact us.