Guide and Laws for Student Loan Debt Write-off

Are you struggling to pay your student loan debt? This can be a big worry, but you’re not alone. Every month, more than 170,000 people come to us for guidance on their debts.

In this article, we’ll provide clear and helpful advice on:

• How student loans in the UK work.
• How to pay back your student loans.
• If you can claim a refund on a student loan overpayment.
• How to write off some of your debt.
• Types of student loans and when repayments start.

StepChange stresses the need for professional debt advice, noting that 60% of adults in financial trouble hesitate to seek help.¹ We understand the stress of dealing with debt and are here to help. Whether you have a Plan 1 or Plan 2 loan, we’ll walk you through your options. We’ll also explain when and how your student loan could be written off and if it’s included in your credit report.

Let’s dive in.

How Do Student Loans in the UK Work?

Firstly, in order to determine how your student loan repayments will work, you’ll have to identify whether you have a Plan 1 or a Plan 2 loan. 

If your course started before the 1st of September 2012 or you have a loan from a creditor in Northern Ireland or Scotland, then you have a Plan 1 loan. In this case, in 2023 you will have to start paying back your loan when you start earning £20,195 a year, £1,682 a month or £420 a week.

If your course started after the 1st of September 2012 or you have a loan from a creditor in England or Wales, then you have a Plan 2 loan. In this case, in 2023 you’ll have to start paying back your loan when you start earning £27,295 a year, £2,274 a month or £568 a week.

How Do I Pay It Back? 

Payments towards your student loan are made automatically through the tax system. There is no student loan repayment plan that you need to adopt or worry about because it is done for you.

The amount of these payments will depend on how much you’re earning during your pay period. Your pay period is defined as the period after which you receive your salary which could be monthly, weekly or bi-weekly. 

You must keep in mind that if you earn more than your repayment threshold (perhaps due to a bonus or by working overtime), then a deduction may be made from your salary. If, at the end of the year, you make less than the yearly repayment threshold, then you can call the Student Loans Company and ask for a refund. 

It’s extremely important for you to understand how student loan repayments work so that you are able to manage your budget effectively. Here’s some budgeting advice you might find helpful.

Budgeting Advice	How You Can Lower Your Expenses
Arrange a Debt Repayment Plan	To negotiate, contact your creditors via phone, email, or letter to explain your financial situation, and offer to pay an amount you can afford.
Save on Utility Bills	Compare energy providers to find a cheaper deal. Use energy-efficient appliances. Reduce water usage with low-flow fixtures.
Save on Groceries	Shop with a list to avoid impulse buys. Buy store brands instead of name brands. Look for sales and use coupons.
Cut Back on Non-Essentials	This includes dining out, entertainment, subscriptions, and luxury items. Look for free or low-cost entertainment options and cook meals at home.
Transportation Costs	If possible, use public transportation, carpool, or consider biking to work. If you own a car, maintain it regularly to avoid costly repairs.
Negotiate Bills	Contact service providers (like phone, internet, and cable) to negotiate a lower rate or switch to a cheaper plan.
Consolidate Debts	If you have multiple debts, consider a debt consolidation loan or a balance transfer credit card (with caution) to lower interest rates.
Sell a Financed Car	When you sell a financed vehicle, the proceeds can be used to pay off the remaining loan balance.
Use Cash Instead of Credit	To avoid accumulating more debt, use cash or a debit card for your purchases.
Seek Professional Advice	If you’re struggling, consider contacting a debt advice service like StepChange or National Debtline. They offer free, confidential advice.

How Do I Claim a Refund on a Student Loan Overpayment?

You may find that you have overpaid some of your student loans at some point in your working life. This most often happens when there was an error with your employer who set up the repayment process too early.

If you think you have overpaid, contact The Student Loans Company (SLC) for a refund as soon as possible.

It is important that you flag this issue early because student loan repayments are taken directly from your pay, so it may be several months before you notice a slight overpayment. A little overpayment spread out over a long time can add up quickly!

According to StepChange, student loan overpayments are surprisingly common. You could be one of those affected. Check your account to make sure!

What are the Different Types of Student Loans? 

You must be aware of the different types of student loans available to you. These are: 

Income-Contingent Loans 

If you started your course on or after September 1998, then you have an Income Contingent Loan. 

This type of loan is paid back through the tax system and does not involve flat monthly payments. The amount you pay through the tax system depends on how much you’re earning. 

There are two different types of Income Contingent Loans: Plan 1 and Plan 2. 

Mortgage-Style Loans 

If you started studying before September 1998, then you have a mortgage-style loan. These are paid back through fixed monthly instalments once you start earning over £30,737 a year.

» TAKE ACTION NOW: Fill out the short debt form

When would the Repayments Start? 

The earliest date at which your student loan repayments could start would be the 6th of April the year after you graduate from your university or college. 

Keep in mind that in order for your repayments to start, you’ll have to be earning more than the required threshold. 

As I mentioned earlier, these thresholds are different depending on whether you have a Plan 1 loan or a Plan 2 loan. 

The Student Loans Company uses your National Insurance Number to keep track of how much you’re earning. 

Once you get a job, they will instruct HM Revenue and Customs to contact your employer so that payments can be deducted from your taxable earnings. 

HM Revenue and Customs will notify your employer once your loan has been repaid in full. If any payment slips through and your employer deducts some amount of money that they shouldn’t have, then you can contact SLC to get a refund. 

It’s very important that no matter what type of plan you have that you keep a close eye on your deductions. If there’s any discrepancy, you should contact the Student Loans Company immediately.

When and How Can My Student Loans Be Written Off? 

Student loan forgiveness and loan write-offs depend on a number of factors such as where you took the loan from, when it was taken out, what type of plan you have, etc. 

Plan 1 Loan 

For a Plan 1 loan, there are a number of different configurations that can determine when your student loan will be written off. 

If your academic year started in 2005 to 2006 or earlier and you are either from England, Wales or Northern Ireland, then your student loan will be written off when you are 65. 

If your academic year started in 2006 to 2007 or later and you are either from England, Wales or Northern Ireland, then your student loan will be written off 25 years after the first April on which you were due to repay it. 

If your academic year started in 2006 to 2007 or earlier and you are from Scotland, then your student loan will be written when you’re 65 or 30 years after the first April on which you were due to repay it (whichever condition comes first). 

If your academic year started in 2007 to 2008 or later and you are from Scotland, then your student loan will be written off 30 years after the first April on which you were due to repay it (whichever condition comes first). 

Plan 2 Loan 

It’s much simpler for Plan 2 loans than it is for Plan 1 loans. If you have a Plan 2 loan, it will be written off 30 years after the first April on which you were due to repay it. 

Are there any Other Circumstances Through Which It Could be Written Off? 

There are certainly some other circumstances due to which you could write off student loans. 

You can try to get your student loans written off if you have any type of disability or illness which prevents you from earning an appropriate salary. Your illness could be either a physical illness or a mental illness. 

Whether you are able to get your student written off depends on whether you’re claiming certain disability benefits or not. 

In order to get your student debt written off this way, you will need to provide evidence to the SLC along with your customer reference number. 

Can I Pay Back Early?

You can make extra payments towards your student loan if you would like to. There are no fees or penalties added if you choose to do this.

You can even choose how to apply your extra payments to your student loan if you have more than one plan. If you don’t specify how you would like your extra payment to be applied, SLC will decide for you.

For Welsh students, making an extra payment might mean that they can write off £1,500 of their undergraduate loans.

Once you are repaying your student loan, making the minimum extra payment of just £5 will activate the cancellation of £1,500 of your debt. You could make the extra payment of £5 before you begin repaying your loan if you choose to. Unfortunately, this is only available for Welsh students and only happens once!

Will My Loan be Written Off if I Don’t Have a High Enough Income? 

If you’re earning below the income threshold defined by your plan, then you will not be required to make payments towards your loan. That being said, the loan does still exist. 

As soon as you start earning above the required threshold, you will be required to make payments towards the student loan. 

There’s a chance that your student loan could be written off if a certain period of time passes since you were first due to repay it. As we’ve detailed above, this period varies greatly depending on the type of plan. It could be either when you’re 65 years old or anywhere between a duration of 25 years or 30 years. 

Is My Student Loan Included in My Credit Report? 

No. Student loans do not appear in your credit report and they do not have any effect on your credit score. 

Thus, if you apply for a mortgage or any other type of loan and your lender runs a credit check on you, they will not find any mention of a student loan in your credit report. 

Is Interest Applied on Student Loans? 

Yes. Interest does get added to your student loan.

• Plan 1 – 5.25%
• Plan 2 – 7.1%
• Plan 4 – 5.25%
• Postgraduate Loan – 7.1%

This interest is dictated by the government and reflects fluctuating interest rates in all of the UK. It is likely that interest rates will change for any future loans.

References

1. StepChange – Problem debt and the credit safety net