Student Loan Debt Help & Advice

What is a student loan?

A student loan can be the difference between being able to go to university or college and not being able to go at all. For people from certain financial and social backgrounds who may think “university or college isn’t for me”, it helps them pay for an education that they might otherwise struggle to afford.

Loans can help the average student finance:

• Tuition fees (the price of the course itself)
• Living costs (maintenance grants help pay for student accommodation and the cost of travel)
• Other costs (such as books, field trips and study equipment like laptops)

However, while taking a loan reduces financial pressure on students while they’re in full-time education, it isn’t ‘free’ money. When student life is over and you head out into the world of work, it’s important to understand that you’ll need to pay back what you owe eventually.

How do student loans work?

The student loan system is overseen by the government and is set up so you only start to pay your student loan back when your wages go above a certain level (often referred to as a repayment ‘threshold’).

Student loan repayments are taken from your salary automatically, via the tax system. When you receive your payslip, you will notice a deduction from the Student Loan Company (SLC) alongside your National Insurance, pension, and any other deductions.

In theory, this means that the money you owe on your student loan should never hit your bank account as it will be removed from your payslip before you receive it.

When do I need to make payments to my student loan?

Depending on the type of loan you have, you won’t have to make any payments to your student loan until you’re paid more than the threshold for your student loan plan.

The threshold for each plan is updated each year, so it’s important to keep up to date with the latest information. As of 2024, the thresholds are as follows:

Plan 1 student loan

You’ll start paying this back as soon as you reach the repayment threshold of earning more than £480 a week, £2,082 a month or £24,990 a year.

Plan 2 student loan

Your repayments will start as soon as you hit the repayment threshold by earning in excess of £524 a week, £2,274 a month or £27,295 a year.

Plan 4 student loan

You’ll start making repayments once you earn more than £603 a week, £2,216 a month or £31,395 a year.

Plan 5 student loan

Your repayments will begin when you exceed the threshold of earning over £480 a week, £2,083 a month or £25,000 a year.

When you first graduate, it’s easy to forget about student debts if you’re on a lower income. However, it’s crucial to ensure you’re repaying the right amount once you start working and earning above a certain amount.

How much are student loan repayments?

People find it complicated to keep track of the various rules regarding repaying your student loan. How much you repay towards your student debt changes depending on how much you earn and which student loan plan you’re on.

Each plan has a threshold for your weekly or monthly income. As a general rule of thumb, your contribution will be:

• 9% of the amount you earn over the threshold for plans 1, 2, 4 and 5
• 6% of the amount you earn over the threshold for the postgraduate loan
• If your income is under the threshold, your won’t make a contribution

Interest starts being added to your loan from when you get your first payment. Normally payments will come straight from your wage through the PAYE system or by self-assessment if you’re self-employed.

Payments will come off after your tax and National Insurance is paid, so if you’re not expecting it, this can come as a surprising extra expense on your payslip.

If your yearly wages are below the level mentioned above, but your weekly or monthly wages push you above it every so often, you may find an occasional payment to your loan on your payslip.

When do I stop paying money towards student loans?

Student loans aren’t ‘forgiven’ in the UK the way they are in the US, but they can be written off eventually, meaning the debt will be wiped and you won’t have to continue making contributions. When this happens depends on what payment plan you’re on, and where you are in the UK.

Scotland

Plan 4 student loan (applies to all undergraduate and postgraduate student loans taken out in Scotland on or after September 1, 1998)

If you started your studies before August 1, 2007, your loan will be written off when you’re 65, or 30 years after you became eligible to repay (whichever comes first). If you took the loan out on or after August 1, 2007, it will be written off 30 years after you were first eligible to repay.

England, Wales, and Northern Ireland

Plan 1 student loan

If you started your course before September 1, 2006, your loan will be written off when you turn 65. If you started your studies after this, your loan will be written off once a 25-year period has elapsed since you were first due to repay.

Plan 2 student loan

Your loan will be written off after a 30 year period, on the anniversary of when you were first due to repay.

Plan 5 student loan (introduced in 2023)

Your loan will be written off 40 years after you first became eligible to repay.

What happens if I miss student loan repayments?

If you don’t keep up with your student loan payments, it can cause serious money problems.

When taking out a student loan, you have agreed by law to pay it back to the Student Loans Company. If you don’t stick to the terms and conditions you originally agreed to, they have the right to accelerate your debt, which means they can get a court order for any outstanding debt to be paid in full plus interest.

This often causes the balance to become completely unaffordable. Since the payments are taken straight from your wages, the Student Loans Company don’t need to rely on debt collectors, but taking money from you automatically can leave you short for your other bills.

Do student loans affect your credit rating?

Because student loan repayments are deducted from your wages in much the same way as taxes, repayments do not appear on your credit file the same way other loan repayments like credit cards might. In other words, payments towards student loans cannot impact your credit score.

However, while it shouldn’t affect your credit score, it can impact your ability to get a mortgage. Most lenders carry out ‘an affordability test’ to determine if you can afford your mortgage repayments and any monthly student loan repayments could have a direct impact on how much you’re able to repay towards your mortgage.

How can I keep on top of my student debt?

It can be hard to keep track of your payments to your student loans, and they can be a long-term burden on people financially given they take so long to pay off . This has led to US writing off billions in student debt for those who have been making repayments for as little as 10 years.

However, there are things you can do to make sure you stay on top of your student loan repayments:

Firstly, it’s important to check that the correct amount is being taken via PAYE. If you think you are overpaying, contact your payroll department and the Student Loans Company to have this reviewed.

If you’re self-employed, use an online calculator to work out roughly what you’ll owe based on what you think you’ll earn and put this amount aside. Doing this as soon as possible will give you more time to save up.

Lastly, you can also work with an accountant who will help you with your tax return before it’s filed. This can help ensure that you’re paying the right amount.

Where can I get debt advice on student loans?

While student loan debt is common, and repayment won’t kick in until you reach the salary threshold, student loans take such a long time to pay back that they can become a financial burden.

If you’re worried about your student loan debt, need guidance on the best way to repay it, or are falling behind with payments and are considering debt relief, Creditfix can help.

We help people deal with debt, and our debt advisers are on hand to help you put your money worries behind you. For free debt advice and support, get in touch today – you can call us on 0800 0431 431, or our email address is [email protected].