In very basic terms, student loan repayments are due at a rate of 9%:
- on your earnings over £15,000 a year, whether from employment or self-employment
- on other income over £2,000 a year if you are required to fill in a tax return under Self Assessment.
How repayments are made
There are basically three ways of repaying an income-contingent student loan:
- through your wages, under Pay As You Earn (PAYE)
- through HMRC’s Self Assessment system
- direct to the Student Loans Company (SLC).
Which of these applies to you (or more than one, in some cases) depends on your circumstances. For example you might:
- be employed in the UK, in which case deductions are made under PAYE
- be self-employed or have other income which means you have to fill in tax returns each year so the Self Assessment system will be used to collect repayments
- be, say, both employed and self-employed and therefore have some repayment deducted through your wages, under PAYE, and adjusted, after the year end, under the Self Assessment system
- wish to make extra payments direct to the SLC at any time. If so, please note that this does not reduce any amount that you might owe under the normal PAYE or Self Assessment process but it does mean that you pay off the balance more quickly
- have to pay direct to the SLC if you move abroad
- have nearly repaid your loan in full, in which case you may be able to opt out of PAYE deductions and switch to a direct debit to the SLC instead.
When to start repayments
The tax year runs from 6 April one year to 5 April the following year. You will usually start repaying your loan at the start of the tax year after you finish or leave your course but only if you earn at a rate of more than £15,000 a year. Your earnings are calculated before deducting tax or National Insurance contributions (NICs).
Although there was some discussion about increasing the threshold above which repayments begin, it has been announced that it will remain at £15,000 until April 2012, after which it is proposed to adjust it each year to take account of inflation.
In the subsequent pages, we cover the various ways of collecting repayments and how they are calculated.
