Student loans are applied for to assist with the living and tuition costs of higher education. Depending on when you will a student would determine the level of interest applied to the loan and at what earnings threshold loan repayments are made.
Student loans are set into two plans, Plan 1 and Plan 2
Plan 1 - For students who started before 1 September 2012
The current earnings threshold for making loan repayments is when you start earning over £17,775 and this changes each tax year.
Loan repayments would be due from the April after leaving higher education subject to earning over the threshold.
Interest is currently applied at 1.25%.
Plan 2 - For students who started on or after 1 September 2012
Loan repayments are required to be made when you start earning over £21,000 and would start from the April after leaving your course or four years if you studied part –time.
Interest is applied at inflation plus 3% whilst studying. When you leave higher education, interest is dependent on your income received from the prior tax year:
£21k or less: Inflation
£21k - £41K: Inflation plus up to 3%
£41k plus: Inflation plus 3%
How do you repay your student loan?
Loans are repayable at the rate of 9% over and above any earnings received over the relevant earnings threshold for Plans 1 & 2.
PAYE – As an employee, the employer would deduct the relevant amount from an individuals salary each month. At the end of the year one would be able to see how much has been deducted and repaid as student loan deductions from the end of your P60.
Self employed are required to prepare a self assessment return.
The annual student loan deductions would be due to be settled at the same time an individual would pay any personal tax liability for each tax year, by 31 January following the tax year in question. If part of the self assessment included PAYE income, any repayments made throughout the tax year are offset against the expected annual student loan repayments due.