Student Loans

As we set our first foot into the adult world of employment, some of us may have a student loan hanging over us.

The joy of securing employment and being able to afford to live, as opposed to existing just on beans on toast, becomes a pay cheque away. The hours of study are about to pay off…that is until the powers at be within the Student Loan headquarters says “well done on your new job, but as well as tax, national insurance and pension contributions, we also want our chunk to repay what we lent you!”
Then very soon, that pay cheque feels a lot less and exciting than you initially thought it would be.

There are two different types of plans when it comes to Student loans.

How the amount deducted is calculated depends on when you took the loan out.

Plan 1 is for:

• English and Welsh students who started before 1 September 2012
• all Scottish and Northern Irish students

You start repaying when you earn over £17,775. This amount changes on 6 April every year. If you earn less than this then you do not pay anything back.

Plan 2 is for:

• English and Welsh students who started on or after 1 September 2012.

You start repaying when you earn over £21,000, the same with plan 1 if you do not earn above 21,000 you do not start any repayments.

For those of us that are employees of a company the loan deduction will be taken out of our wages along with national insurance, tax etc.
It is important that you inform your employer what plan you are on. If you do not tell your employer you have a student loan, then the HMRC have a nifty way of finding out when/where and what you are earning, they will then get in touch with your employer to inform them what deductions to make.

For those of us that entered the world of self-employment, the way the repayments are made are slightly different. Once you have worked out your income and expenses for the year and submitted your tax return, the level of profits you have, based on the same levels set out above, will determine the amount of student loan you repay – which will be in addition to your tax and national insurance payments.

Example 1 Employed:-

• You are employed on a salary of £35,000 per annum,
• You have an outstanding student loan on plan 2.

You will pay 9% on the difference between £35,000 and £21,000. Therefore per year you will be paying £1260 against your student loan, this will be deducted from your wages at£105 per month.

Example 2 Self Employed:-

• You have earned an income of £28,000
• After expenses your net income is £22,500.
• The Student loan you have was taken out before September 2012 so you are on Plan one.
• You declare on your tax return that you have a Student loan on plan one.

The amount you would pay along with any tax due would be 9% on the difference between £22,500 and £17775, therefore an additional amount of £425.25 would be needed.
If you are self-employed, or have student loan things to remember…

• Keep your accountant updated as to what Student loan you have
• Keep a track on the outstanding balance:
o If it is will be paid off within two years, then you can request for a direct debit to be set up.
• You can make voluntary payments towards the balance
• Just because you are a director and receive dividends you are still liable for the loan repayment if you receive above the threshold
• If you are employed an d have unearned income over £2000 the loan deductions become active only if a tax return is required, if the tax is collected through your PAYE then the loan repayments will also be calculated this way
• There are various rules relating to working aboard, so always best to check when considering foreign jobs.
• Keep records to show what you have already paid
• Student loans will be written off after a period of time, though this all depends on when you took it our.
Further reading on interest rates and loan write offs can be found below. Also you sill see extracts of the key points available on these links:-

https://blog.moneysavingexpert.com/2017/05/02/will-student-loan-written-off/

When are outstanding loans wiped?

(1) This is the age you were when your last agreement for a loan was made – usually your last year of study.

Interest charges on Student loans, the information below is sourced from
https://www.slc.co.uk/students-and-customers/loan-repayment/interest-rates.aspx
Undergraduate loans
Income Contingent Repayment for pre 2012 (Plan 1) loans

From 1 December 2017 until 31 August 2018, the interest rate set for the existing Income Contingent Repayment loans will be 1.5%.

Income Contingent Repayment Loans for post – 2012 – (Plan 2) loans
From 1 September 2017 until 31 August 2018 one or more interest rates may apply to you:

Postgraduate Loans (England and Wales)
From 1 September 2017 until 31 August 2018, the interest rate for borrowers in England and Wales taking out a Postgraduate Loan for a Master’s degree will be 6.1% (RPI + £3%).
These interest rates are still a lot lower than some credit companies, plus you have the added advantage on of only paying once you reach the threshold per plan.
If you need any further advice on the above feel free to give us a call where one of our friendly team members will be more than happy to help.