At some point, every student will ask themselves, how does my student loan work? Well, if this is you, you’re in the right place. Your student loan repayment will be explained completely in this article. This blog was written in September 2024. Any facts and figures are correct as of this time.
Understanding your Student Loans
A threshold will be stated in your repayment plan. When your income goes over this, you’ll start repaying your student loan. Your income is the amount that you earn (including overtime and bonuses) before tax (and other deductions). Every April 6th, the threshold amounts change.
The different repayment plans are explained here. Signing into your student loan repayment account will show you which one you’re on. You can do this through GOV.UK.
When do you Start Repaying Your Loans
The earliest you’ll begin repaying your student loans is:
- The first April after you finish your course
- If you’re on plan 5, then April 2026 will be the earliest time for repayment
- You might have studied part-time or did a Postgraduate Doctoral course. If this is you and your course was longer than 4 years, the earliest you’ll start repaying is the April 4 years after your course started
How Interest Rates Work
Each repayment plan will charge a different amount of interest. This is currently:
- Plan 1, 4 and 5: 4.3%
- Plan 2 and Postgraduation Loan plan: 7.3%
Interest is added when the first amount is paid until the loan is eventually paid completely or wiped.
Repayment Methods for Graduates
Your student loan will usually be repaid directly from your payslip. If you’re self-employed, HMRC will work out how much you pay. They’ll do this using your tax return. You’ll then repay your student debt at the same time as your tax.
Some people choose to make extra repayments. Doing so can help clear your debt quicker and will eventually leave you with more money every month. Some people also decide to repay their loan in full.
What Happens When Income Changes
You’ll automatically stop repaying your student loan if:
- Your income goes below the threshold for your repayment plan
- You don’t work anymore
You may begin earning more. In this case, you’ll have to pay a higher amount. 9% of your income will be repaid over the threshold if you’re on Plans 1, 2, 4 or 5. You’ll repay 6% of your income over the threshold if your plan is a Postgraduate loan.
Budgeting for Student Loan Repayments
- Keep track of what you spend your money on. Many digital bank accounts let you categorise your spending. Doing this can show areas where you could potentially cut back on how much you’re spending
- Start saving your money. Once you know which areas you can start saving money in, you’ll find you have more to spare. This can be used as emergency money or go towards something important
- When buying something new, give yourself a budget. If you need new shoes, you might plan to spend nothing more than £100. Or you might set yourself a £30 limit for your food shop. Doing this allows you to plan ahead. This way you can manage your money better
Common Misconceptions About Student Loans
- “Student debt damages your credit score”. This is a myth! When getting a mortgage, student debt is taken into consideration. However, it doesn’t show up on your credit file. Student debt isn’t treated the same way as other debts are
- “Student debt isn’t manageable”. Again, this isn’t true. Repayments aren’t too high so there’s not a huge hit to your income. It’s a change which many people don’t notice
- “You’ll be paying off your student debt your whole life”. Nope. Your student loan will be wiped by a certain time. This will depend on which plan you’re on
- “To go to university, you must be rich”. Not true! If your household income is lower, you’ll probably receive a higher maintenance loan
Manage Your Finances with The Student Energy Group
Here at The Student Energy Group, we’ll combine all your monthly statements into one. This can then be used for bill splitting between you and everyone you live with. This student bills package includes energy, gas, water, internet, and TV licence. We want to make your life easier! By signing up with us, we’ll plant a tree. Get a free quote from us. It’ll take you less than two minutes.
