Student loans can be a very prudent way of funding your education but at the same time, they can be hard to pay back.
Before you go about repaying your student loans, there are some things which you should definitely be aware of.
Today, I’ll be discussing how student loans in the UK work and how and when you could get your student loan written off.
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, you will have to start paying back your loan when you start earning £19,390 a year, £1,615 a month or £372 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, you’ll have to start paying back your loan when you start earning £26,575 a year, £2,214 a month or £511 a week.
How Do I Pay Back My Student Loans?
Payments towards your student loan are made automatically through the tax system.
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.
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.
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.
When would My Student Loan 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?
This depends 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 My Student Loan 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.
Will My Student 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. Thus, it’s a good idea to try and look for loans with lower interest rates.
While there are certainly some ways through which your student loan could be written off, it could take a very long time depending on what type of loan you have.
However, the most important thing to note is that your payments are made through the tax system and the required income threshold ensures that you are never paying more than what you can afford.