Student Loan Repayment

The number of undergraduate days are dwindling and you may have even already graduated and started life in the ‘real world’. Either way you’re probably wondering what’s going to happen to the thousands of pounds you borrowed from the generous fellows at the Student Loans Company.

“What do you mean, I borrowed thousands of pounds?”

I’m afraid it’s not as easy as that! Besides, you shouldn’t be worrying about the amount of student loan you owe. The bailiffs won’t be popping over to repossess any of your property and student loan repayment is something the majority of graduates have to take into account. It’s nothing to worry about as only a small amount is paid once you earn over a certain amount.

How Does Student Loan Repayment Work?

If you started university before 1 September 2012 (before the tuition fees went up to £9000 a year) and are paying just under £3500 for your annual tuition, you will only begin to repay your loan once you earn above one or several of the following:

  • £333 a week
  • £1,444 a month
  • £17,335 a year.

The amount you pay back is 9% of the amount you earn above this threshold. Repayments are automatically taken out of your salary with your tax and national insurance, so no need to buy a load of brown envelopes with the Student Loans Company address printed on the front to stuff cash in every month and send off.

If you started studying at university after 1 September 2012 and are paying up to £9000 a year you won’t start repaying until April 2016. Repayments start when you earn £21,000 a year and if your earnings dip below this, repayment will be put on hold. Again, this is automatically deducted from your wages.

How Much of My Student Loan Will I Pay Back?

How much you pay back of your student loan depends on how much you earn and can get quite complicated so do lend me your ears (or eyes as you can’t actually hear me…).

If you paid just under £3500 for your tuition you will pay 9% of however much you earn over the sums mentioned above. This means that you won’t pay 9% of an £25,000 salary, but rather you will pay 9% of £8090 because that’s how much over £16,910 your salary is. Therefore you would repay £728.10 a year of your student loan. That’s the equivalent of about £14 a week. Hardly breaking the bank!

If you paid £9000 a year, you will pay back 9% of any income over £21,000. So if you earn £30,000 you will pay 9% of £9000, which turns out at £810 a year. This is the equivalent about £15.60 a month.

Student Loan Interest Rates

What? Student loans have interest rates? Yep, we were shocked when we found out too.

For student loans taken out before 2012 (i.e. those who pay just under £3500 a year tuition) the interest rate for student loans is the national rate of interest plus 1%. Therefore it’s currently 1.5%.

For loans taken out after 2012 by students paying up to £9000 a year, interest rate is decided depending on certain factors.

  • When you’re studying, the rate of inflation plus 3% will apply to your loan
  • When you’re earning £21,000 or less the rate of inflation will apply to your loan
  • If you earn anywhere between £21,000 to £41,000 the rate of inflation plus up to 3% will apply to your loan
  • If you earn over £41,000 the rate of inflation plus 3% will apply to your loan.

At the end of the day, everybody who goes to university is likely to get a student loan and repayment is a very small fraction of your wage or salary that you won’t even notice it being repaid. You may want to check up on your repayment from time to time but it usually sorts itself out. It’s just like tax and gets taken off your wages every month, but it’s nice to know how it works, nevertheless.

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