How do student loans work in the UK
The rules around student loans in the UK are very important, but can sometimes be a little confusing. To reduce stress and worry about student loans, it is important to stay informed about what they are and how they work.
What is a student loan?
A student loan is a form of financial assistance provided by the government to help students cover the costs associated with studying at university. This can include tuition fees, accommodation, and other living expenses.
Student loans in the UK are split into two different payments. Everyone is entitled to a tuition fee loan, which covers the cost of the tuition fee. The standard tuition fee is £9,250 a year.
There is also a loan to cover living expenses while studying at university. This is called the maintenance loan and is different for different individuals.
How much can you receive?
The amount of student maintenance loan you can receive in the UK depends on a number of factors, including where you're studying, your household income, and whether you're living at home or away.
For students starting in the 2023/24 academic year, the maximum loan amount is £8,400 per year for students living at home, up to £9978 per year for students living away from home outside of London, and up to £13,022 per year for students living away from home in London.
What is a student loan plan and which one am I on?
Student loans are grouped into different student loan repayment plans. There are five different payment plan groups:
- Plan 1 - You started your course before 1st September 2012 in England or Wales. Or, you studied your course at any time in Northern Ireland.
- Plan 2 - You started your course between 1st September 2012 and 31st July 2023 in England or Wales.
- Plan 3 - Now called the Postgraduate Loan plan, it applies to people studying a postgraduate degree in England or Wales.
- Plan 4 - You applied to Student Awards Agency Scotland
- Plan 5 - You started your course on or after 1st August 2023 in England.
How do you pay back your student loan?
The good news is that you don't have to start paying back your student loan until you've finished your studies and are earning a certain amount. In the UK, the threshold for repayment depends on the type of student loan plan you have but is between £21,000 and £27,660 for the 2023/24 Tax Year.
- For the most common plan, plan 2, it is £27,295 for the 2023/24 Tax Year. Once you start earning above the threshold, you'll need to start making repayments.
The way you pay back your student loan also depends on the type of plan you have. Plans 1, 2, 4, and 5 pay 9% of their income over the threshold, while people with postgraduate loans pay 6% of their income over the threshold. These payments are automatic and called Student Loan Deductions.
How much interest will you need to pay?
Interest rates on student loans in the UK are linked to the Retail Price Index (RPI) measure of inflation. Currently, the interest rate for Plan 2 loans is set at RPI plus 3%, while for Plan 1 loans, it's set at the lower rate out of RPI and the Bank of England base rate plus 1% . This means that the interest rate varies each year. For plan 2, it is 6.9% for the 2023/24 tax year
It's worth noting that the interest on your student loan doesn't start accruing until you've finished your studies and start earning above the repayment threshold. Once you start making repayments, the interest you pay will depend on how much you earn and what plan you're on.
When will your student loan be written off?
Student loans are different to normal loans as after a certain amount of time, they are written off. This means that if you have not already fully paid off your student loan after a certain amount of time, you don't have to continue payments as any outstanding balance on your loan will be forgiven. When this occurs depends on the type of student loan plan you are on and when the loan was taken out:
- Plan 1 - it is written off when you are 65 if you took out the loan earlier than 2006, or 25 years after the April you were first due to repay if it was taken out for the 2006/07 academic year or later.
- Plan 2 - it is written off 30 years after the April you were first due to repay.
- Plan 4 - if you took out the loan earlier than 2006, it is written off when you are either 65 or 30 years after the April you were first due to repay, whichever comes first.
If it was taken out for the 2006/07 academic year or later, it is written off 30 years after the April you were first due to repay.
- Plan 5 - it is written off 40 years after the April you were first due to repay.
- Postgraduate Loan/plan 3 - it is written off 30 years after the April you were first due to repay.