Your student loan can be one of the biggest loans that you have taken in your life. A student loan is a type of loan that typically help you to pay for your higher studies. Student loan mainly consists of tuition fees and maintenance fees.
The student fees cost generally helps you to cover the total cost that you require to complete your entire education. The student loan-providing companies will directly pay your education provider. However, the maintenance cost is the cost that will be required you to cover any cost to complete your education. These may include buying books, and supplies, and your living costs if you move far away from your home.
Here, in this article, we are going to wrap up what is student loan repayment plan 1 and 2, what are the latest student loan changes, how the student loan works, what is the student loan repayment threshold, and how will be the student loan repayment plan 2.
Let’s dive into the deep!
Student loan repayment plan 1 and plan 2:
In the UK, four categories of student loan repayment plans apply to the UK and EU citizens.
Student Loan Plan 1:
The first plan, plan 1 applies to English and Welsh students who have started their UK-based undergraduate studies between 1 September 1998 and 1 September 2012. Also, including the Northern Irish students who have studied in the UK since 1 September 1998.
EU students can also be on student loan plan 1 if they have studied in English and Wales between 1 September 1998 and 1 September 2012; or in Northern Ireland after 1998.
Student loan plan 2:
The student loan plan 2 applies to English and Welsh students who started their undergraduate courses on or after 1st September 2012.
The EU students who have started their UK-based undergraduate course in Wales or England after 1st September 2012 are also on Plan 2.
How do student loans work?
Unlike some countries such as America, the student loans of the Uk citizens are not treated like private debt. Rather, the repayment will be taken off directly from your pay once you meet a minimum student loan salary threshold.
Many people see the student loan as similar light to a tax, as the portion of your income will be taken out before they ever reach your pocket. So, you don’t need to put your student loan repayment into your budget and worry about repayment by yourself.
What is the student loan repayment threshold?
At the time of writing, the repayment threshold for plan 2 ICR loans is £27,295 and graduates need to pay 9% of their earnings above this. So, suppose, if your salary is £100 above the threshold (£27,295) then you need to pay £9 each year.
The threshold for a Plan 1 loan is lower than that of Plan 2. The threshold is £1,657 per month but still, you have to pay 9% of any amount over this. The interest has not changed for plan 1 and the interest will remain at 1.1% of the amount owned.
What are the latest student loan changes?
Most of the aspects of the student loan in the UK remain the same including the amount that you can borrow for your maintenance cost, your tuition loan, and loan repayment threshold. The only thing that has changed is the amount of interest that you will earn on your overall loan amount.
Between 1st October 2021 and 31st December 2021, the maximum rate of interest applied on the student loan will be capped to match the rates. It will be compared the rates of the unsecured personal loans that have recently been reduced.
The maximum interest rate has been reduced by 0.4% to 4.1% from 1st January 2022. But, they will go back to around 4.5% or RPI+3 (Retail Price Index)
The change rate will be applied to plan 2 income Contingent repayment (ICP) student loans that were taken out after September 2012,
How and when do I repay my Plan 1 student loan?
- You will start repaying your loan at the start of the tax year after completing your course.
- You can make your repayments only when your income is over the current UK repaying threshold which is £1,657 a month.
- If in case your income falls below the repayment threshold, repayments will be stopped at that moment and restart again when your income is over £1,657 a month
- In the following years, the threshold will be rated.
- You can make additional voluntary repayments at any time to SLC.
How and when do I repay my Plan 2 student loan?
- If you are a full-time student then you will be eligible to repay your loans at the start of the tax year after completing your course.
- If you are a part-time student, you will be n to start to repay your loans in April after you complete your course, or April comes four years after the date you have started your course, whichever comes first.
- You can start to repay your loans only when your income is above the current UK threshold which is £27,295 a year, £2,274 a month.
- If in case your income falls below the repayment threshold then repayments will be stopped immediately and restart again when your income will be over the threshold.
- You can also make additional voluntary repayments at any time to SLC.
For plan 2, if you are studying, the interest rate is 4.5%. If you are an employee then the rate depends on your income in the current tax year.
Your monthly payments on a student loan will be based on your annual income before tax. Your income whether it may the form of salary, dividends, or investments, is over the threshold for paying back the loans then you are due on repaying.
When your student loan plan 1 will be written off?
Your student loan plan 1 will be written off once you become 65 if you have started your studies in the academic year 2005/06 or earlier. However, if you have completed your studies in the academic year 2006/07 or later, then the student loan repayment will be written off 25 years after the April you were first due to repay.
When your student loan plan 2 will be written off?
If you fall under student loan repayment plan 2 then the repayments will be written off 30 years after the April you were first due to repay.
What happens if you don’t pay off student loans UK?
Ans: By law, you must pay off your student loans in the UK in line with loan contracts and regulations. SLC has the right to take proper action against you. SLC can also get a court order to make you repay the total debts with interest and penalties in a single payment.
How many years does it take to pay off student loans UK?
Ans: If you took out the first loan for your study after 1st September 2006, the loans for you will be written off 25 years after the April you were first due to repay.
According to the information that we have put together in this context, people can acquire some knowledge about student plan 1 and plan 2. This article will be helpful for loan borrowers who want to protect themselves from the negative effect of student loan repayment.
You will be able to implement some financial prospects in your life by understanding the effect of student loans in higher studies in the UK. If you are concerned about the influence of your student loan on your future financial prospects such as buying a home, etc. then you can speak to a financial advisor.