30 October, 2015
Graduating and getting out into the real world is an
terrifying exciting time.
And whilst finding the perfect position and finally starting to earn some real money has some obvious benefits for your bank account, there is one obvious drawback: you actually have to pay back your student loan.
We spoke to the Money Advice Service to find out everything you need to know about repaying your student loan:
Repayments after you graduate
Student loan repayments begin when you join the workforce and start earning more than a certain amount. They are repaid automatically through the tax system, and stop once you’ve paid them off.
It’s important to know exactly what’s involved in student loan repayment, and that you’re prepared for when you have to start making repayments. And it’s never too soon to start budgeting for them.
You can work out your incomings and outgoings on the Money Advice Service’s quick-and-easy Budget planner.
What type of loan do you have?
The type of loan you have is called an Income Contingent Loan. How much you pay depends on your income and you pay it back through the tax system. There are no flat monthly payments.
There are two types of repayment plan – Plan 1 and Plan 2. Which one you’re on will determine when you start repayments and how much you pay.
Plan 1 is for students living in England and Wales who started studying before September 1, 2012, and all students living in Scotland and Northern Ireland.
Plan 2 is for students living in England and Wales who started studying on or after September 1, 2012.
How does student loan repayment work?
You’ll start repaying your student loans through the tax system as soon as you start working and earning enough.
The Student Loans Company will tell HM Revenue & Customs (HMRC) to notify your employer when you start work. Payments will be automatically deducted from your taxable earnings.
Once you’ve repaid your loan, HMRC will notify your employer and the repayments will stop. Any payments which slip through before your employer takes action will be refunded.
When you have to pay back your student loan?
The earliest you’ll start making Plan 1 repayments is the April after you leave your course. You’ll only start repaying your loan when your annual income exceeds £17,335. You stop paying if your income drops below that amount.
If you’re already studying, the earliest you’ll start making Plan 2 repayments is April 2016, even if you drop out of your course early. If you start studying in September 2015 or later, the earliest you’ll start repaying is the April after you leave your course.
Either way, you’ll only start repaying your loan if your annual income is more than £21,000. You stop paying if your income drops below this amount.
When might your student loan be written off?
Wherever you studied in the UK, if you started studying before September 1, 2006, any outstanding balance will be written off when you reach age 65.
If you started studying on or after September 1, 2006 and have a Plan 1 loan, any outstanding balance will usually be written off after 25 years.
In Scotland, the period before the loan is written off is 35 years. If you have a Plan 2 loan, any remaining balance is usually written off after 30 years.
Source by reed.co.ukShare: