Student loan debt

For many, student loan debt is an inevitable part of university life.

Every year scholars across the country rely on student loans to help them cover the cost of further education – whether that be to support with tuition fees, living costs or learning materials.

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In this guide we'll discuss student loan dent in more detail, including how student loans work, the repayment threshold as well as other loans and debts students may struggle with.

What is a student loan?

A student loan is a loan specifically designed to help students pay for higher education, such as college or university.

For many people, student finance can be the difference between going onto to further education or not so it's an important consideration for many students.

Student loans are split into two parts: tuition fees and maintenance fees.

That means loans can help the average student finance the cost of the course as well as living costs, such as student accommodation or travel costs. It can also help with other costs such as study equipment like laptops or field trips.

It's important to remember, however, that a student loan is a type of debt. So while it can be a financial aid during studies, you'll eventually be required to start repaying what's owed.

What is the average student loan debt in the UK?

According to figures from the UK Government, £20 billion a year is loaned to around 1.5 million students in England alone each year.

The value of outstanding loans at the end of March 2023 reached £206 billion and it's forecast to hit around £460 billion by the mid-2040s.

How do student loans work?

Student loans are provided by the Student Loans Company.

The Student Loans Company is a government-owned organisation that administers loans and grants to college and university students in the UK.

Most people are entitled to the tuition fee element of the loan is equal to the annual cost of your course up to £1,250 per year. This is capped until the 2024/25 academic year.

The maintenance loan is designed to help pay for things like accommodation, food, books and any equipment you may need.

You'll not start repaying your student loan debt until you reach a specific salary threshold.

Who is eligible for a student loan?

To apply for student finance you must be a UK national, Irish citizen or have settled status with no restriction on how long you can stay in Britain.

You must also have lived in the UK, or the Channel Islands or Isle of Man, for three years before the course starts.

You're also eligible for a student loan if your course is based in the UK and is one of the following:

  • First degree (eg BA, BSc or BEd)
  • Foundation Degree
  • Certificate of Higher Education
  • Diploma of Higher Education (DipHE)
  • Higher National Certificate (HNC)
  • Higher National Diploma (HND)
  • An Initial Teacher Training course
  • Integrated master's degree

What's the difference between an old style and new style student loan?

There are two different types of student loans:

  1. an old style loan for courses that started before 1998
  2. a new style student loan for courses after 1998

If took out an old style student loan, also known as a mortgage-style loan, it will have been covered by the Consumer Credit Act (CCA). These loans were repayable over five or seven years, as long as the course lasted more than three years.

If you've taken out a loan since 1998, you'll have taken out a new style student loan. These are sometimes known as income contingent loans. If you take out this type of loan, monthly repayments will be taken from your wages when your earnings are above a specific salary threshold.

How much are student loan repayments?

Student loan debt isn't like repaying other loans. Instead of being based on how much you borrowed, repayments are based on your income. This includes things like bonuses and overtime.

You'll start thinking about repaying what you've borrowed at the end of your course, but it's important to remember that you'll only start paying once you reach the salary threshold and you'll only pay back 9% of your income above that amount for undergraduate loans.

The repayment threshold varies for each of the different student loan plans, so it's important to be aware of what you're on.

Plan 1

Location: Northern Ireland

Annual threshold: £22,015

Monthly threshold : £1,834

Weekly threshold: £423

Plan 2:

Location: Wales (or England before August 1, 2023)

Annual threshold: £27,295

Monthly threshold : £2,274

Weekly threshold: £524

Plan 4:

Location: Scotland

Annual threshold: £27,660

Monthly threshold: £2,305

Weekly threshold: £532

Plan 5:

Location: England (after August 1, 2023)

Annual threshold: £25,000

Monthly threshold: £2,083

Weekly threshold: £480

Postgraduate loan:

Annual threshold: £21,000

Monthly threshold: £1,750

Weekly threshold: £403

When will I start repaying student loan debt?

You'll only begin making contributions towards your loan balance after you graduate and when your income is above a certain amount, as highlighted above.

You'll deal with both the Student Loans Company (SLC) and HM Revenue & Customs (HMRC) when you leave your studies and start paying what you owe.

Deductions towards your repayment plan will be taken directly from your income each month. Your income (including things like bonuses and overtime) before tax and other deductions.

It's important to be aware that the threshold amounts change every year on April 6.

The earliest you'll start paying towards your outstanding balance is:

  • the April after you leave your course
  • the April four years after the course started if you're studying part-time or doing a Postgraduate Doctoral course and your course is longer than four years
  • April 2026 and if you're on Plan 5

It's also worth keeping in mind that there's no penalty if you're able to repay some or all of your student loan early.

When do I stop making payments to student loan debts?

In most cases you'll make student loan payments from your bank account until you've covered the cost of your entire loan balance.

However, you may not be required to continue to pay towards your student loan in two instances:

  1. you stop working
  2. your income drops below the threshold

Can I defer payments?

If your earnings are below a certain amount, you may be able to defer payments towards your student loan.

This is sometimes referred to as deferment which means postponing your repayment for 12 months.

You can defer payments in your income is below the threshold, which is set at 85% of the national average earnings.

That means that under current rules, from September 1 2023 and August 31 2024, if your gross income is £3,187.92 or less per month (equivalent to £38,255 per year), you may be eligible to apply for deferment.

You can apply to the following companies to defer payments:

  • Erudio Student Loans
  • Thesis Servicing
  • Honours Student Loans

Keep in mind you'll need to have evidence, such as wage slips, to prove your current situation. It's important to make sure you continue to make payments until you get written confirmation that your deferment has been accepted.

Do student loans affect your credit rating?

Student loans are a different to other types of borrowing as they don't appear on your credit file. As such, your credit rating won't be affected.

That's because payments towards the balance come directly from your wages, as long as you earn more than the threshold amount.

Put simply, there's no way to avoid the repayment plan so student loans are no longer shown on your credit report.

However, it's important to be aware that if you become self-employed when you have an outstanding balance on your loan, you'll need to complete the student repayment section of your Self-Assessment tax return.

If you don't repay the total amount you may be served a County Court Judgement (CCJ) which will how up on your credit report.

What happens if I miss student loan repayments?

As already mentioned, when the time comes, repaying your student loan is an automatic process.

Your student loan repayments will be taken from your wages each month, just like any other tax or National Insurance contributions.

The process of repaying is slightly different if you're self-employed. You'll need to complete the student repayment section of your Self-Assessment tax return to calculate what you owe.

It's important that this balance is paid to avoid further consequences, such as being issued with a CCJ.

Are student loans forgiven after 20 years?

This is a common question many graduates have, however, when your student loan gets written off depends on which repayment plan you're on.

Plan 1

When a Plan 1 loan is written off depends on the date you were paid the first loan of your course.

If you were paid the first loan on or after 1 September 2009, the loan will be written off 25 years after the April you were first due to repay.

If you were paid the first loan before 1 September 2009, the loan will be written off when you're 65.

Plan 2

Plan 2 loans are written off 30 years after the April you were first due to begin payments.

Plan 4

Plan 4 loans can be written off but it depends on when you were paid your first loan.

If you were paid the first on or after 1 August 2007, it will be written off 30 years after the April you were first due to start payments.

If you were paid the first loan before 1 August 2007, it'll be written off when you're 65 or 30 years after the April you were first die to begin payments (whichever comes first).

Plan 5

These loans are written off 40 years after the April you were first due to make payments.

Postgraduate loans

If you're a student from England or Wales, a postgraduate loan will be written off 30 years after the April you were first expected to start payments.

If you're from Northern Ireland, the rules from Plan 1 apply. If you're from Scotland, the rules from Plan 4 apply.

It's important to be aware that student loans can't be included in formal debt solutions. However, if you're struggling to manage other debts, like credit cars for example, you may consider seeking debt help.

What other debts can students struggle with?

Of course, a student loan isn't the only debt scholars need to worry about.

Whether you're an undergraduate or post-graduate student, there are a range of different debts that you may struggle to manage.

University life isn't always cheap, especially when you may be working for a lower salary but have several upfront costs , or if studying full time and in a relationship you may be relying more on your partner's income.

With that in mind, you may find yourself struggling with debts such as:

  • credit cards
  • personal loans
  • buy now, pay later
  • store cards

Where can I get student loan debt advice?

Whether you're an undergraduate or a graduate student and worried about managing debt repayments, talk to UK Debt Expert.

We understand that managing debt isn't always easy, but we're here to help.

Our experts will get to know more about you, your situation and discuss all of the options available to you to help manage your budget

Key Takeaways

  • Student loans in the UK are designed to cover both tuition and maintenance fees, helping students manage the costs of higher education.
  • The UK government loans about £20 billion annually to students, with outstanding loans forecasted to reach £460 billion by the mid-2040s.
  • Repayment of student loans is income-contingent, beginning only when the borrower's salary exceeds a specific threshold.
  • Student loan debt is not reflected on credit files, thus not affecting credit ratings directly.
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