How do student loans work? When do you have to repay your student loan?

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If you’re going to university you will need to take out a student loan. But how do student loans work and what could you owe?

How do student loans work?

The maximum you can borrow will depend on the course you’re doing, the university you’re studying at and where in the UK you’re from. England has different rules about tuition fees to Scotland and Wales.

SAVVY TIP: You may be entitled to extra financial support if you’re a parent, are disabled or if you have an adult (aged 18 or over) who’s financially dependent on you. You can find out more about extra support on the Student Loans Company website.

Applying for student loans

If you’re from England, you can apply for your student loan online. You can apply up to nine months after the start of the academic year. There’s information on how to apply online on the Gov.uk website. You’ll have to register to create an account if you don’t already have one. You’ll need your National Insurance number in order to do this.

SAVVY TIP: If you can’t apply for the loan online, you can download the form and print it off. You can find the student finance forms on the Gov.uk website.  You must download the forms and send them by post if you’re an EU student or a part-time student applying for a grant.

If you’re from Scotland, you’ll have to apply to SAAS for financial help while you’re at university.

If you’re in Wales, you have to apply to Student Finance Wales

If you’re in Northern Ireland you have to apply to Student Finance Northern Ireland

Different types of student loans

If you’re an English or Welsh student and you started university on or after September 1st 2012, you’ll have taken out a Plan 2 student loan. That means you start paying back your student loan once you earn more than £25,000 (in tax year 2018 – 19).

If you’re a Scottish or Northern Irish student, or you started university before September 1st 2012, you’ll have a Plan 1 student loan. That means you’ll start paying it back once you earn more than £18,330 (in tax year 2018 – 19).

SAVVY TIP: In both cases, you’ll pay back the loan at a rate of 9% of your income above the threshold.

Maintenance loans

As well as a loan to pay for tuition fees, students can apply for a maintenance loan, which can be used to pay for living costs. This loan is available to you if you’ve applied for a full-time undergraduate degree or if you’re going to do teacher training.

SAVVY TIP: You’ll get paid your maintenance loan in three instalments if you’re studying applying via Student Finance in England, Wales or Northern Ireland or monthly if you’re studying at a Scottish university or college or applied through SAAS (the Student Awards Agency for Scotland).

Interest on student loans

While you’re studying you don’t make any payments towards your loan, but interest is added. This means that your loan amount increases all the time. If you started university after September 2012 in England or Wales (you have a Plan 2 loan) the interest rate is 6.1% (RPI plus 3%) for 2018 – 19. This will rise to 6.3% in September 2018.

  • From April 6th in the year after you leave university, the interest rate depends on your income. If you earn up to £25,000, the interest rate is RPI, which is 3.1%. If you earn over £41,000, the interest rate is 6.1% (RPI plus 3%). These rates will rise to 3.3% and 6.3% respectively in September 2018.

SAVVY TIP: If you lose touch with the Student Loans Company, or don’t send them the information they need, the rate automatically rises to 6.1% (6.3% from September 2018).

  • If you have a Plan 1 student loan, the interest rate is 1.5%. Previously, the interest rate changed every year but it’s been set at 1.5% ‘until further notice’.  The maximum chargeable is actually 3.1%, but a low interest rate cap has been triggered, which has kept the rate to 1.25%.
  • If you have a post-graduate loan, the interest rate is 6.1% (6.3% from September 2018).
  • If you have a mortgage style loan, the interest rate is 3.1% (3.3% from September 2018).

Paying back your student loan

You repay your student loan through your payslip if you’re employed or at the same time as you pay your tax if you’re self employed. When you start working and earning more than the repayment threshold, you’ll need to tell your employer which type of student loan you have.

SAVVY TIP: Keep your P60 slips, as you’ll need these if you want to claim a refund.

If you’re self employed, your student loan repayments will be calculated alongside the amount of tax you owe. You have to pay your student loan repayment every January 31st for the previous tax year. However, you don’t have to pay your student loan as part of your July ‘payments on account’.

Working overseas and your student loan

If you work overseas your repayment threshold could fall sharply. The repayment threshold is based on the cost of living in the country you’re based in. In India, the threshold is just £5,000 a year. In Italy it’s £20,000. So if you work overseas you for just a few months, you could find that you have to start repaying your student loan or that the amount you have to repay rises.

SAVVY TIP: If you’re working overseas for less than three months, this isn’t a problem. But if you’re going overseas for more than three months, you have to tell the Student Loans Company so they can assess how much you should repay. There’s a list of the overseas student repayment thresholds on the Student Loans Company website.

Related articles:

The best student bank accounts for 2018-19

The best postgraduate bank accounts; bank accounts for graduates

Student accommodation; know your rights when you’re renting a student house or flat

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