Douglas Olsen
Student loans in the UK are typically made up of tuition fees and maintenance loans. The former covers the annual cost of the course, while the latter is means-tested and intended to cover accommodation, food, books and equipment. Interest is charged on the loan from the day it is taken out, and the amount varies across the UK. The Retail Price Index (RPI) is used to calculate student loan interest, which measures changes to the cost of living in the UK. The interest rate is normally updated once a year in September, and the RPI value from March is used unless it is capped due to being too high. The UK currently has four plans for student loan repayments, each with its own repayment threshold and interest rates. Repayments are typically 9% of income above the repayment threshold, and they are usually made at the start of each term in England, Wales and Northern Ireland, and monthly in Scotland.
| Characteristics | Values |
|---|---|
| Interest charged | Yes, from the day the Student Loans Company makes the first payment. The rate is based on the Retail Price Index or RPI, which measures changes to the cost of living in the UK. |
| Interest rate | The current rate of interest is 7.3% as of September 2024. |
| Repayment threshold | You start repaying the loan in the April after you finish or leave your course, but only if you're earning over the repayment threshold. The threshold varies depending on the nation within the UK where you originally lived when you took out the loan. |
| Repayment amount | You repay 9% of your income over the threshold. |
| Repayment frequency | Repayments are made at the start of each term in England, Wales, and Northern Ireland, and monthly in Scotland. |
| Repayment plan | There are four plans, each with its own threshold and interest rates. The plan you're on depends on the nation within the UK where you originally lived when you took out the loan. |
| Postgraduate loan | You repay 6% of your income over the Postgraduate Loan threshold and 9% of your income over the lowest threshold for any other plan types you have. |
| Overpayment | You can't get a refund on any voluntary repayments you make. |
| Moving overseas | You'll repay directly to the Student Loans Company, and the repayment threshold may be different, meaning the amount you repay could be different. |
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What You'll Learn
Student loan interest rates
The interest rate on student loans in the UK is based on the Retail Price Index (RPI), which measures changes in the cost of living in the UK. The rate usually updates every September, but it can also change throughout the year. For students in England, the interest rate is typically set at the RPI measure of inflation. As of September 2024, the interest rate on student loans was 7.3%.
The amount of interest you are charged depends on your repayment plan. There are currently four plans in the UK for undergraduate courses, each with its own repayment threshold and interest rates. Plan 1 interest rates have been low for many years, but they have increased steadily in recent times. If the Bank of England reduces its interest rates, Plan 1 interest rates are likely to drop as well. Plans 2 and 5 now have a cap to ensure the maximum interest rate does not exceed the average rate for personal loans from banks or other lenders.
You are charged interest on your student loan from the day you take it out, and interest accrues until your loan is fully repaid or cancelled. However, the amount of interest charged does not affect your monthly repayment amount. The repayment threshold for student loans in the UK varies across the different nations. In England, the repayment threshold is £25,000, while in Wales it is £28,470, in Scotland it is £32,745, and in Northern Ireland, it is £26,065.
Once your income exceeds the repayment threshold, you are required to start repaying your student loan. The standard repayment amount is 9% of your income above the threshold. However, if you have additional income from sources such as savings interest, pensions, or shares, you may need to repay 9% of that as well, provided your total income is above a certain level. It is important to note that the terms and conditions of student loans, including repayment plans and interest rates, can change after you have borrowed the money.
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Repayment plans
The repayment plan for a student loan in the UK depends on when the course started and what type of course was studied. Students cannot choose their repayment plan, and if they have more than one loan, they might be on different plans.
Those with a Plan 1 loan who are paid monthly will repay a percentage of their income over the income threshold if it is above £2,172 a month. For example, if they are paid £2,750 each month, they will repay £52 per month.
For those with a Plan 2 loan and two jobs, they will only make repayments on the income from the job that pays over the threshold of £2,372 per month. HM Revenue and Customs (HMRC) will calculate how much they repay each year from their tax return. If they have already made repayments from a salary, HMRC will deduct them from the amount they owe.
Those with a Postgraduate Loan and a Plan 2 loan will repay 6% of their income over the Postgraduate Loan threshold (£21,000 a year) and 9% of their income over the lowest threshold for any other plan types. For example, if they have an income of £28,800 a year, they will repay £41 per month.
Self-employed people or those with other income doing self-assessment tax forms are responsible for notifying HMRC of payments due for student loans. If they have additional income of £2,000+ from savings interest, pensions or shares and dividends, they will need to repay 9% of that, provided this, plus income, is over £28,470.
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Refunds on overpayments
In the UK, over a million former students overpaid on their student loans in the 2022/23 tax year. This can happen if your monthly income exceeds the monthly equivalent of the annual repayment threshold, triggering your loan repayments to start. However, if your total annual income ends up below the repayment threshold, you may be eligible for a refund.
To avoid overpaying, the Student Loans Company (SLC) recommends that you make your final loan repayments via Direct Debit. You can set this up through your online account or by calling SLC. If you have overpaid and have not heard from SLC, you can ask them for a refund by signing into your student loan repayment account and contacting them with your customer reference number (CRN).
It's important to note that if you choose to pay extra towards your student loan, SLC states that you cannot later claim this money back. Additionally, you cannot get a refund for extra repayments or intentional overpayments.
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Postgraduate loans
If you have taken out a Postgraduate Loan, you will be charged interest from the day you receive your first payment from Student Finance England. Interest will continue to be charged until your loan is fully repaid or cancelled. Interest is typically charged at the Retail Price Index (RPI) plus 3%. The RPI is a measure of UK inflation and is reviewed annually on 1 September. It is worth noting that if the average comparable market rate is lower than the interest rate you are being charged, a temporary interest rate cap will be applied.
The amount you repay depends on your income and the repayment threshold for your loan type. If you are on Plan 2, for example, you will start repaying your loan when your income is over £2,372 a month. If you are on Plan 1 and Plan 2, with an income of £26,400 a year, you will be repaying 9% of your income over the £2,172 threshold. If you are self-employed, you will make repayments at the same time as you pay tax through self-assessment.
If you have a Postgraduate Loan and a Plan 2 loan, with an income of £28,800 a year, you will repay 6% of your income over the Postgraduate Loan threshold (£21,000 a year) and 9% of your income over the Plan 2 threshold. This means your monthly repayment would be £41. If you have multiple jobs, you will only make repayments from the job that pays you over the threshold for your plan type.
It is important to notify HM Revenue and Customs (HMRC) of any additional income, such as from savings interest, pensions, or shares and dividends. If your total income, including these sources, is over £28,470, you will need to repay 9% of that amount via self-assessment.
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Moving overseas
If you have a UK student loan and plan to move overseas, you must inform the Student Loans Company (SLC) if you will be abroad for more than three months. The SLC will then take over the collection of your repayments. You will be asked to complete an '"Overseas Income Assessment Form', giving details of your income and employment status. The repayment threshold relevant to the country you are going to may not be the same as the corresponding threshold in the UK. Overseas thresholds vary according to comparisons between the cost of living in the UK and the other country.
If you secure employment abroad, the SLC will ask for the name of your employer and evidence of your salary. They will probably ask you to set up a direct debit repayment arrangement. The level of your repayment will depend on your overseas earnings. You will repay 9% of your total earnings over the threshold.
If you do not contact the SLC to complete an overseas income assessment, repayment arrears may build up on your loan account. If you return to the UK for more than three months, you should let the SLC know, as your repayment status will revert to that of a UK taxpayer.
Living abroad does not erase your student loan debt, but it also does not mean you are stuck with it. Solutions exist to help you stay in control of your debt while living overseas. For example, if you plan to make a permanent home overseas, the insolvency exclusion could work in your favour. At the time of forgiveness, the IRS assesses your assets and liabilities. If your liabilities outweigh your assets, the tax on the forgiven amount may be wiped out entirely.
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Frequently asked questions
The interest rate is currently 7.3% as of September 2024. However, interest rates vary across the UK, with England setting the rate at the retail price index (RPI) measure of inflation, which is currently 4.3%.
Interest is charged from the first day you receive your loan until it is fully repaid or cancelled.
Interest rates are updated each September and apply until the following August. During your course, interest is typically RPI plus 3%. After you finish your course, interest depends on your income and is usually on a sliding scale.
If you move overseas, you will need to repay your loan directly to the Student Loans Company. The repayment threshold may differ from that in the UK, resulting in a different repayment amount.
Yes, you can make voluntary repayments towards your student loan. If you are a high earner and expect to pay off your loan, this can help you clear your debt sooner and save on interest charges. However, if your loan is cancelled or remains unpaid, any voluntary payments will not be refunded.
