Author: Ken L. White
These picture explain how I felt when I opened a letter from the Student Loans Company (SLC).
This topic is very near and dear to me having completed two degrees and being the owner of the most important variable attached to those two degrees. Not the actual education or degree certificates, but the student loan company account with a debt that exceeds any graduate salary I could expect in today's economic climate.
The main thing that bothers me is that now when I repay this debt, I must pay tax on income before doing so. There are many factors to consider before paying more than the required amount back early, because you are taxed on your income, in real terms for every £1 you pay to SLC, it costs you that plus whatever rate of income tax you pay.
For example, if your threshold means that you pay 20% income tax, for a payment of £100 to the student loans company, it will cost you £120.
Be advised that this is important to you when considering what other debt you are able to take on such as mortgages or car loans. So understand it and use it to better yourself.
Below are some of the ways which you repay and how much you are liable to repay depending on your level of income. You can elect to pay back more than the minimum if you wish to get rid of it earlier. However, consider your more urgent and immediate debt and get rid of those first (overdraft, credit cards etc).
Repayments
You must pay back Tuition Fee Loans and Maintenance Loans. You pay interest on these. You don’t have to pay back other student finance, eg grants and bursaries.
How much you pay back
If your course finishes before 2016, repayments won’t start until April 2016.
Your repayments are linked to your income. You only make repayments when your income is over £21,000 a year. If your income drops below this amount repayments stop.
Part-time students sometimes start repayments while they’re still studying.
Each month you pay back 9% of any income over £21,000.
| Your income per year | Monthly repayments |
|---|---|
| £21,000 and under | No repayments |
| £25,000 | £30 |
| £30,000 | £67 |
| £40,000 | £142 |
| £50,000 | £217 |
| £60,000 | £292 |
Interest on your student loans
You pay interest from the time your first payment is made until you pay your loan back in full.
For courses that started on or after 1 September 2012 the following interest rates apply:
| Income | Interest rate |
|---|---|
| While you’re studying | Rate of inflation (Retail Price Index) plus 3% |
| £21,000 or less | Rate of inflation |
| £21,000 to £41,000 | Rate of inflation plus up to 3% |
| £41,000 and over | Rate of inflation plus 3% |
Making repayments
You can pay some or all of your loan at any time without an extra charge.
If you’re an employee your employer will work out your repayments and take them out of your salary with your tax.
If you leave your course early, you still have to repay your student loan.
If you go abroad for more than 3 months you need to fill in an overseas income assessment form. Student Finance England will then work out your repayments.
With a rate of 9% on any income over £21,000 which means you will probably be paying this as most graduate salaries exceed this.
Example
A total income of £25,000 means that (£25.000-£21,000=£4,000) on that £4,000 you pay 9% which equates to £360 annually. There are some ways to avoid excess payments, you can utilise you annual tax free allowance via an ISA.
Questions
1. How much student debt did you have when you graduated and what year did you graduate in?
2. Has paying back over the compulsory amount drastically affected your ability to consume to any noticeable effect?
3. How has your student loan affected your ability to borrow for a mortgage or a car loan?
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