Not like other debt
It’s important to recognise that loans from the Student Loan Company (SLC) are quite different to credit cards, personal loans, or overdrafts.
For a start, repayments aren’t optional: unless you’re overseas or self-employed, they’re taken straight from your salary before it reaches your bank account.
Secondly, your monthly repayments are based on how much you earn – not the size of the debt - meaning that losing your job or having a low paid role won’t land you in trouble.
Finally, student loan debt doesn’t appeal on your credit file, meaning a large student loan debt won’t impede your ability to borrow. Lenders only consider the amount you repay each month.
This guide looks at all Student Loan Company loans, how to pay them back and the penalties you need to be aware of.
How much will I owe?
This ultimately depends on what you studied, where you studied it and for how long.
Those who study in London will have larger balances due to the larger living cost loans they are eligible for.
The average graduate in England beginning to pay off their loans in 2018 owed £34,800, according to the SLC.
There were lower figures for Northern Ireland (£22,440), Scotland (£13,230) and Wales (£21,520).
Don’t forget, however, that your debt will increase because of interest payments.
English and Welsh students who started university before 2012, as well as current Scottish and Northern Irish students, are on Plan 1 loans with an interest rate of 1.75%.
If you’re English or Welsh and started university after 2012, you are on a Plan 2 loan. Your interest rates rise with income, from a minimum of RPI (currently 3.3%) to a maximum of RPI plus 3% (currently 6.3%).
However, the actual amount you owe doesn’t matter much, as your repayments are based upon your income.
Tuition Fee loans and Maintenance Loans
There are two different types of loans.
Your university or college sets the Tuition Fee, and the SLC pays them directly.
For the 2018-19 academic year the maximum loan available is £9,250 for full-time universities, and most top universities charge this amount.
The Maintenance Loan is slightly different, as it depends on your household (i.e. parent’s) income, whether you’ll be living at home and whether you’re studying in London.
So, a student in London not living with their parents could get a loan of up to £11,354 in the academic year, and this could go up next year.
There’s also a special option for those studying abroad as part of their course.
You can use the Government’s student loan calculator to work out what you’d get.
Bear in mind that the Maintenance Loan is not designed to cover your living costs and you will need parental support and possibly a part-time job to make ends meet.
It is possible to get extra money that doesn’t need to be repaid.
The best way to find what you’re eligible for is to use the student loan calculator.
You should certainly look out for grants if you have children, are disabled, or are studying medicine, dentistry, healthcare, social work or teaching courses.
It’s also worth searching for charitable grants on the Turn2Us website.
Wales, Scotland and Northern Ireland
Wherever you studied, and whatever organisation you got your loan from, you’ll repay it to the Student Loans Company.
UK citizens living in Wales are eligible for non-repayable grants of at least £1,000 and up to £10,124 a year, as well as student loans from Student Finance Wales.
You’ll get a higher grant if your parents’ household income is lower and you are studying away from home and/or in London. The higher a grant you receive, the lower loan the size of the Maintenance Loan you’ll receive.
If your household income is under £18,730 you could be eligible for an additional non-repayable Learning Grant of up to £1,500 a year.
Welsh students are on Plan 2 loans.
If you’ve lived in Scotland for three years or more, you can get free tuition at Scottish universities. You’ll have to pay full price elsewhere, but you can apply for a tuition fee loan to cover the cost.
Wherever you study, there is a mix of grants (up to £1,875 a year) and loans (up to £7,625 a year) available to cover living costs through the Student Awards Agency Scotland.
Unlike Wales, the size of the grants and loans both decrease if your household income is higher.
Scottish students are on Plan 1 loans.
Students who’ve lived in Northern Ireland for three years or more can get tuition fee loans from Student Finance NI, including loans to cover the (much lower) fees in the Republic of Ireland.
For living costs there is a mixture of non-repayable grants and loans. You’ll be eligible for a non-repayable grant if your parents’ household income is below £41,540 and up to £3,475 is available per year.
Loans are available up to the sum of £6,780, depending on where you studied and your household income.
Northern Irish students are on Plan 1 loans.
When you start repayment
If you’re English or Welsh and have a Plan 2 loan, you’ll only have to start repaying your loan when you’re earning £25,000 a year, £2,083 a month or £480 a week.
If you’re Scottish or Northern Irish, or are English and started university before 2012, and have a Plan 1 loan the threshold is slightly lower: currently £18,33 a year, £1,527 a month or £352 a week.
That threshold is adjusted for foreign countries, depending on local living costs.
If your salary is below the threshold, or you’re unemployed, you shouldn’t have to make any repayments – but to be safe, contact the SLC to tell them you’ve been made unemployed.
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Paying it back
If you are paid a salary, the SLC simply takes 9% of your earnings above the repayment threshold.
So, someone living in England, earning £30,000 a year, is earning £5,000 above the threshold. 9% of £5,000 means repayments of £450 a year, or £37 a month.
When you start your new job, make sure you inform your HR department and they will arrange with the SLC to commence repayments.
If you’re self-employed, you repay your loan to HMRC as part of your self-assessment tax return.
If you live abroad, you will be expected to notify the SLC of how much you’re earning each year and set up a direct debit or debit card payment to repay your loan.
You’ll generally also be expected to supply evidence of your earnings, such as payslips.
Your repayments will still equate to 9% of your earnings above the repayment threshold.
Be warned that the SLC can and does impose penalty interest rates and fees if you are late when replying to correspondence, don’t make the minimum repayments or understate your income.
At the most extreme, this could mean a demand to repay your entire loan, plus interest and penalties, in a single huge lump sum. The SLC has been known to use foreign debt-collection firms to chase borrowers for payment.
More routinely, if you don’t respond to the SLC you’ll have to pay a higher interest rate.
For English and Welsh students on Plan 2 loans, your loan will incur a 6.3% interest rate until you reply to the SLC’s requests for information, although this won’t increase your repayments.
As the SLC communicate largely by post, those living abroad may receive instructions after the deadline for taking action has passed. To avoid this, log into your SLC account online and look for records of communication, which should include scans of any letters they’ve sent you.
Always keep a record of all your correspondence with the SLC and be prepared to complain if necessary (full contact details are available here).
Should you overpay?
It is possible to make voluntary extra repayments to your student loan debt.
This is unlikely to save you money, however.
With mortgages or personal loans, overpayment now means lower interest charges later. But with student loans, your repayments are fixed at 9% of your income above the threshold. Even if your loan racks up huge interest charges, your repayments remain the same.
Eventually, the remaining balance on your loan will be written off: currently, 30 years after you graduate. The Institute for Fiscal Studies estimated 77% of those taking out student loans last year would have some of their loans written off.
Only the richest 23% of graduates, those who will repay their entire loan, could benefit from overpayment. Yet even they could gain more benefit from using that money to get on the property ladder or save it into their pension.
Read our Mastering Money in Your 20s guide for ideas on what to do with your savings.
Overdraft and credit card debt
University is expensive and whilst we don’t advise racking up overdraft and credit card debt, it does happen.
This debt is completely different from Student Loan Company debt: it does affect your credit rating, repayments aren’t fixed, and you should pay it off as soon as possible.
Start by repaying off the debt with the highest interest rate. This is most likely to be your credit card, because most student bank accounts have interest-free overdrafts (but always check).
If you can’t manage payments and need help, we’ve put together a list of debt charities where you can get free advice.