From September 2023 new students starting university or higher education will now be on a ‘plan 5’ loan system.
This is the biggest change to student finance in England in a decade and will lead to many paying back double what they would have done on the old system.
It is important to recognise that student loans are not like other loans. They come from the Government and give you more protection than loans that you have with a credit card or buying a home.
You do not repay anything until you leave your course and your income is over £25,000, known as the repayment threshold. The monthly repayments are based on what you earn, not what you owe so you pay your loan back gradually over many years. The loan is automatically cancelled after 40 years.
For example, if you complete a three-year course that started in September 2023, you will not begin repaying your Plan 5 student loan until April 2027. If your course is one or two years, or you leave your course early, you will not have to start repaying your loan until April 2026. Those studying part-time have a different arrangement. Repayments are deducted directly from your salary by your employer, at the same time as tax and National Insurance. If you are self-employed, you will pay annually through your tax return. Once you earn over the repayment threshold (£25,000 a year, £2,083 a month or £480 a week), 9% (or 9p in every £1) is deducted as your student loan repayment.
If your annual income is £28,000 and you are paid a regular monthly wage. This means that each month you earn £2,333, which is £28,000 divided by 12. This is £250 over the threshold of £2,083, which means you will pay back £22 each month because 9% of £250, or 9p in every £1 in £250, equals £22.50, but rounded down to the nearest pound.
If your income increases, your repayments will also increase. However, if your income goes down your repayments will also reduce or stop altogether if it falls below the repayment threshold.
There is no guarantee the current thresholds will remain, as the Government have the power to amend the guidelines.
Our team of dedicated Customer Service Advisors are always on hand to assist with any questions. You can reach us on 01252 863700 or email: customerservices@epayme.co.uk
Source: Gov.uk