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When will your student loan be written off and what will it cost you?

From the amount of interest charged to having your loan written off, find out everything you need to know about paying back your student loan...

Note, the below mainly applies to those on Plan 2 student loans (English and Welsh students, who've taken out a loan after 2012). 
 

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How much will I have to pay back in student loans?

It depends how much you earn, and where you live.

If you live in the UK, you’ll pay 9% of everything you earn (before tax) over the repayment threshold (now £25,725, having increased slightly from £25,000 as of 6 April 2019) for 30 years after you graduate (Plan 2 student loans).

The principle is the same if you live abroad (or plan to live abroad), which we’ll tackle separately.

 

Income Annual student loan repayment
Up to £25,725 £0
£25,725 - £30,000 £0 - £385
£30,000 - £35,000 £385 - £835
£35,000 - £40,000 £835 - £1,285
£40,000 - £45,000 £1,285 - £1,735
£45,000 - £50,000 £1,735 - £2,185
£50,000 - £55,000 £2,185 - £2,635
£55,000 - £60,000 £2,635 - £3,085
£60,000 - £65,000 £3,085 - £3,535
£65,000 - £70,000 £3,535 - £3,985
£70,000 - £75,000 £3,985 - £4,435
£75,000 - £80,000 £4,435 - £4,885
£80,000+ £4,885+


 

Beware, the repayment threshold can change each year

Thanks to a recent government change, the amount you can earn before you start making repayments will also rise each year, in line with average earnings. According to the Office for National Statistics, these rises have averaged about 1.4% each year. 

If this trend continues, the repayment threshold could end up being £38,000 in 30 years, although salaries should have gone up equally by then too (fingers crossed!).

How does student finance work where you live? Read our special guides for students in EnglandScotland, Wales and Northern Ireland.

Will I ever pay off my student loan?

News flash, most people won’t actually clear their student loan.

Their repayments won’t be enough to pay off the interest (see next section) and the outstanding debt. But if you haven’t paid off the loan after 30 years, then the remaining amount will be written off. 

This means that student loans work more like a graduate tax for most students, which medium-to-higher earners will be paying for most of their career. Note that if you’re a mature student, the same 30-year repayment window applies. 

How much will you earn, one, three and five years after graduating? Search for a course and see...

How much interest will I be charged on my student loan? 

You’ll be charged interest on your student loan as soon you take it out, which might surprise you.

While you’re studying, this will be 3% above the Retail Price Index (a measure of inflation). Over the past six years, the Retail Price Index has averaged at 2.3% a year, making the total amount of interest you pay on your loan while studying around 5.3% each year. 

Once you graduate, things get more complicated. The amount of interest you’re charged will depend on the amount you earn.

If you’re earning less than £25,725 per year, your interest will match the Retail Price Index, so around 2.3% a year.

People earning more than £46,305 a year will once again be charged 3% above RPI, so around 5.3% a year. 

For those earning between £25,725 to £46,305, the extra interest rate you’ll need to pay above RPI varies depending on your earnings – so if you earn £35,000 (roughly halfway between £25,725 and £46,305) you’ll be charged RPI + 1.5%. 

 

Examples: student loan repayments

To help make sense of all this, we’ve imagined four examples of graduate earners and what they’d pay:

Example 1: ‘average’ starting salary

Starts earning: £25,725 or less, with average pay rises

Tom borrowed the maximum student loan available, totalling £53,850 (£9,250 per year for tuition fees, plus £8,700 each year for maintenance). While at university, his debt increased by £1,650 each year, because of the higher initial interest rate while studying. 

He graduated in 2018 and started earning £25,725 a year, receiving average pay rises throughout his career.

Despite borrowing around £54,000, Tom’s student loan debt ballooned to around £116,000 after 30 years because of the interest added to the loan. This may sound scary, but assuming the repayment thresholds rose in line with his salary increases, he would never have had to repay any of his loan (since he never earns more than the repayment threshold).

This means Tom’s entire loan gets written off and he pays nothing back. 

  • Total borrowed: £53,850
  • Student debt at graduation (after three years of study): £58,810 
  • Cost of student loan repayments: £0
  • Amount written off after 30 years: £116,340

 

Example 2 – ‘above-average’ starting salary

Starts earning: £35,000 with average pay rises

Megan started her career earning £35,000 and therefore repaying £835 of her student loan per year (9% of everything over the £25,725 threshold).

Because she earned above £25,725, she was charged a higher interest rate on her loan of around 3.6% (rather than 2.3% each year for those earning £25,725 or under). 

Assuming Megan’s salary rises by an average amount each year, and inflation carries on at its current pace, over the 30-year repayment period she would end up paying back around £33,860.

However, because Megan was charged higher rates of interest, her debt ended up increasing. This means her repayments were not even enough to cover the interest charged on her student loan, so a large amount still gets written off after 30 years.

  • Total borrowed: £53,850
  • Student debt at graduation (after three years of study): £58,800 
  • Cost of student loan repayments: £33,860
  • Amount written off after 30 years: £114,010

 

Example 3 – ‘top’ starting salary

Starts earning: £47,00 with average pay rises each year

Olivia started her career earning £47,000 and her salary rose with inflation. Even with those earnings, she still did not pay off her student loan.

She initially repaid £1,900 a year, or £160 per month (9% of everything over the £25,725 threshold), but those payments didn’t even cover the £3,100 she was charged in interest after leaving university. 

Olivia’s earnings increased by 2% a year, meaning her student loan repayments also rose by around £40 each year. After 30 years, Olivia had repaid £77,680.

But by this point, because of the high interest rate on her loan (3% above RPI), her outstanding debt will have grown far beyond the initial amount borrowed. Despite repaying £77,680, around £108,800 of outstanding student loan debt will still be written off. 

  • Total borrowed: £58,850
  • Student debt at graduation (after three years of study): £58,800 
  • Cost of student loan repayments: £77,680
  • Amount written off after 30 years: £108,810

 

Example 4 – fast-track earner

Starts earning: £35,000 with above-average pay increases

Josh started earning £35,000 as a graduate, but ended up with above average pay increases of around 5% each year. After 30 years he will have made a bigger dent in his student debts than our other examples, but still won’t have completely cleared it.

He began repaying £830 per year (9% of everything over the £25,725 threshold), but his student loan repayments increased each year in line with his salary increases. Over a 30-year career he will end up repaying around £115,360, on total earnings of £2.3 million.

Even though he is making large repayments, his debt won’t start to fall until 20 years into his career when his repayments become higher than the interest on his student loan. After 30 years, Josh will be earning over £140,000 per year - but ’s remaining student loan debt of £50,970 will be written off.

  • Total borrowed: £58,850
  • Student debt at graduation (after three years of study): £58,800 
  • Cost of student loan repayments: £115,360
  • Amount written off after 30 years: £50,970



Find the best graduate bank account for you.
 

Repaying your student loan if you’re living abroad

Student loan repayments are calculated the same way if you work overseas, but the earnings may be higher or lower, depending on the country you work in. That’s because some countries have a lower or higher cost of living than the UK.

The principle is the same. You’ll repay 9% of everything over the local threshold. You can see repayment thresholds for countries around the world in the map below. 

Arguably this is unfair for some, as local living costs are quite different to national ones. The cost of living in China, for example, might be much lower than the UK but the cost of living in Beijing is higher than in Britain. 

However, this is quite similar to the UK. Although the earnings threshold is £25,725 across the country, average wages and living costs in London are far higher than in Yorkshire, for example. So if you are thinking of working abroad, you’ll want to factor in how much your income will be affected by student loan repayments. 

If you do decide to work abroad you’ll need to let the Student Loan Company know where you are, and what you’re earning. If they don’t have information about your income, you’ll be charged a fixed amount each month, which also depends on the country you are in.

How do student loan repayments work? 

Student Loan repayments are handled by the Student Loan Company. In most cases, your repayments will be calculated and deducted automatically by your employer, but if you are self-employed you’ll need to settle this in your tax return. 

Can I make voluntary student loan payments? 

If you want to, you can also make voluntary additional payments, either on a one-off basis, or by direct debit. In theory this will mean you’ll clear your debts earlier, but if you’re one of the majority who can expect to make repayments for 30 years, this won’t save you any money in the long-run. 

That said, for some people this might be worthwhile. If you receive a windfall, such as an inheritance or company bonus, paying down your student debt could increase your chance of clearing your debt – meaning you’ll stop being charged 9% of everything over the threshold. 

These optional repayments will only really make sense if they let you clear your loan in full, or put you within touching distance of doing so. Unlike other types of loans, an overpayment won’t reduce the amount you repay each month. If you still have any outstanding debt, whether £2,000 or £20,000, you’ll pay 9% of everything over the repayment threshold. 

If you want to make voluntary payments, you can do so by logging in to your account at SLC.co.uk.


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    How to avoid overpaying your student loan

    If you’re getting close to clearing your student debts, setting up manual payments can be a good way to make sure you don’t end up overpaying. This is most likely to affect people on the earlier student loan system, for those who started university before 2012 (Plan 1 student loans). 

    Student Loan payments are processed by both the Student Loan Company and HMRC, and for technical reasons they won’t stop automatically if you reach the point of paying off your loan in full. 

    According to a Freedom of Information Request in 2017, some 86,000 people ended up overpaying their student loans in 2015/16, by more than £51m in total. The average overpayment was £592, but some higher earners ended up overpaying by thousands. 

    This money should be reimbursed, but if you’re close to clearing your debt, it’s better to contact the SLC in advance so you don’t end up paying more than you need to. 

    In future, this issue should stop, but it could take longer than anticipated. HMRC is currently upgrading its systems, and once that is complete (supposedly in 2019) the SLC should be able to get live updates on the payments you’ve made, and then stop charging you as soon as you’ve cleared your debt. 

    Student loan repayments: Ben’s story

    Ben Philips found settling up his student loan anything other than straightforward, despite working in payroll (ironically).

    Having worked for several years, and taking a student loan under the older system, he found he was close to clearing his student loan. He heard about overpayment problems, so he contacted the Student Loan Company and tried to set up a direct debit for the last few months of his debt, to avoid overpayment. 

    He set up a payment for a couple of hundred pounds per month, but after trying to change his repayment date to coincide with his pay day he found that the amount he was repaying had fallen. 

    Initially, it seemed straightforward. The Student Loan Company rep asked for how much I’d paid so far, explained my outstanding debt and agreed to cancel my pay-as-you-earn payments. We set up a direct debit, but the repayments weren’t being processed properly. It looked like I owed £400 more than I did.

    The issue appears to be due to the Student Loan Company’s system, which has a delay in processing PAYE payments, and including manual payments. 

    In the end, Ben’s student loan was cleared, and he was not overcharged. But this was down to making several lengthy phone calls, taking hours. 

    The lesson? If you’re in touching distance of paying off your student loan, keep a close eye on the balance sheet and contact the Student Loans Company if anything feels amiss.

    How to complain about your student loan

    With hundreds of thousands of people going to university each year, it’s inevitable that things will go wrong sometimes.

    Errors can range from being paid the wrong amount, being overcharged on your interest, or problems with payments not getting recognised properly. 

    Because the Student Loan Company is not regulated as a financial services company like other loan lenders, you won’t be able to complain to the financial ombudsman service if there’s a problem. But you can take action. Here we look at what can go wrong, and what you can do about it. 

    Student Loan Company – what goes wrong?

    The Student Loan Company (SLC) receives around 12,500 complaints each year, according to an information request we submitted in 2018. 

    The SLC says that around 31% of these complaints are upheld (30.7% in 2016, and 30.9% in 2017). Although not directly comparable, that’s higher than quite a few mainstream lenders, and most high street banks, including NatWest (28%), Santander (26%), Bank of Scotland (23%), TSB (22%), Nationwide (12%) as well as the government savings provider NS&I, where one in six complaints were upheld. 

    Top complaints to SLC revealed

    The most common pains, based on number of complaints are: 
    • Disputes about the amount people are allowed to borrow: 1,359 complaints in 2017
    • Problems with repayments for people working overseas: 883 complaints in 2017
    • Poor advice from the SLC’s call centre: 652 complaints in 2017
    • Long waiting times or unanswered calls at the SLC: 512 complaints in 2017
    • SLC checks on the amount people can borrow: 511 complaints in 2017
    Issues tend to peak in October and November, shortly after students arrive at university and funds are short.

    The SLC receives around 500 more complaints in these months compared with the rest of the year. It’s particularly problematic for postgraduate studies, where complaints triple. 

    Learn more about the reality of student finance according to students at university, or how finance works in your country.

    Alternatively, check out our full career prospects advice, including tips on writing your CV or cover letter, or nailing a job interview.

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