In our previous blog post, we’ve shared student loan repayment plans to help you identify the one applicable to you. Today, we’ll discuss how to repay your student loan.
Without further ado, let’s get started.
Student Loan Repayment
If you are self-employed, your student loan will be repaid through Self-Assessment. If you are employed, it will be done through the UK Tax System.
Repayment of Student Loan For Employees
If employed in the UK, the repayment for your student loan will be deducted from your salary by the Employer, while tax and national insurance will be deducted. You can check your salary slip for deductions.
The Student Loan Company (SLC) will inform His Majesty’s Revenues and Customs (HMRC) of the completion of your course or if you have left the course midway. All other details of your student loan will be provided to HMRC by SLC. Once the details are received, HMRC will cross-check the authenticity of the information and inform your Employer about the loan accordingly. Please note that your Employer will not know about your outstanding loan amount.
You should also communicate your student loan details to your new Employer as a responsible employee.
How Much to Deduct – How Do Employers Know?
HMRC will inform your employer of the threshold limit for each repayment plan, along with your specific student loan repayment plan.
If you earn more than the repayment threshold for your plan type, the Employer will deduct the repayment from your pay. The Employer will then share this information with HMRC, which in turn will share it with SLC. Your loan account will then be updated accordingly.
SLC calculates the interest on your student loan and ensures that the correct interest is charged to your loan account.
The repayment amount is not calculated on the total annual income. Instead, individual pay periods are taken into account. Pay periods denote the payment frequency or your payment schedule. For instance, if you get paid monthly, deductions against student loan repayments are done monthly.
Change of Job
A change of job means that your new Employer will make the deductions for student loans from your pay. This happens only when you earn more than the payment threshold. Also, your previous Employer will give you the P45, saying ‘Y’ in the box against student loans.
If the P45 is unavailable, you may have to complete a starter checklist wherein the student loan will be mentioned. You need to tick the box.
Things to remember:
- Inform your Employer if the repayments do not start automatically.
- If the problem persists, contact SLC. You must mention their name, address, PAYE reference, and employee/payroll number. All these details are on your payslip or P60.
In Case the Employer’s Business Shuts Down, Or the Deductions are not Paid by the Employer.
You need to have evidence that your repayment was deducted from your salary. You need to maintain your payslips as evidence. In such cases, SLC will credit your loan account with the repayment amount as long as you have the evidence.
Repayment of Student Loans for Self-Employed Individuals
You must follow the Self-Assessment (SA) system and send a tax return to HMRC if you are self-employed. The amount for repayment of student loans will be a part of the SA bill. The amount will be calculated as per the taxable income above the threshold of your student loan.
Repayment of Student Loan For Employees & Self-Employed Individuals
Being employed and self-employed simultaneously, there may be some loan amount that you may need to repay after completing your tax returns and that of the Employer. To avoid repaying extra, you can request credit while filing a tax return for the amounts of the loan that your employer has deducted during the year.
Just like PAYE works, the SA system will calculate loan repayments on the amount you earn above your loan’s threshold limit. You can use HMRC’s booklets and guidance to learn how to fill out your SA returns.
Whether you are using HMRC’s Self-Assessment or UK tax return, you need to declare repayments of student loans. The forms need to be filled accurately and returned within the given time limit. Also, ensure you pay your loan repayments and taxes on time.
Remember, if you do not pay taxes and repayments as per the given deadlines, there could be financial penalties. That’s because repayment of student loans is treated similarly to taxes for these forms.
Repayment of Student Loan If Travelling or Working Abroad
Students who take a loan from SLC and then must travel overseas or leave the UK for 3 or more months must repay SLC directly. However, informing SLC that you are out of the UK is imperative. If SLC is not informed, there could be penalties levied on the loan. You may also be asked to repay the entire amount in lump sum along with the penalties and interests.
The monthly repayment amount will be worked out by SLC based on your income. Your salary will be converted into pounds sterling, and the repayment amount will be calculated in pounds sterling. If additional costs are involved in converting currency, you will be paying the same. Any extra fees charged by the bank will also be paid by you.
In the United Kingdom, for Plan 1, Plan 2, and Plan 5, you will be required to repay at the rate of 9% of your income over the repayment threshold. For a Postgraduate Loan, the rate charged is 6% of the earnings above the threshold limit. However, when you are abroad, the difference in the cost of living can make the repayment thresholds different, and SLC will calculate it accordingly.
Fixed repayment rate
When students fail to provide SLC with details of their earnings, they may be charged a fixed repayment rate based on where they live. Depending on their actual income, the repayment amount could be more than the amount charged. You will be obligated to repay this amount; otherwise, SLC will initiate legal action against the student.
When can the loans get canceled?
Student loans can be canceled under exceptional circumstances. In such cases, the student is not required to repay the loan; for example, if the student dies before paying off the loan, becomes disabled, or is rendered out of work permanently due to illness. In the case of any breach, loan cancellation may not apply.
Note the cancellation terms for different repayment plans –
Repayment plan 1
The balance on your student loan taken before 1 September 2006 can be canceled when you are 65 years old, and the interest amount can also be canceled.
If the loan was taken on 1 September 2006 or after but before 1 September 2012, the outstanding amount on your student loan in the UK can be canceled after 25 years from the first month of April, when your first payment was due.
However, it is essential that all repayments on the student loan, depending on your earnings, are duly made until the date the SLC decides to cancel your repayment. If not, SLC can still recover the amount you owe.
Repayment plan 2
Thirty years after your first due date to make the repayment, the loan can get canceled along with the pending amount and interest. However, it is essential that all repayments on the student loan, depending on your earnings, are duly made until the date the SLC decides to cancel your repayment. If not, SLC can still recover the amount you owe.
Postgraduate Loan
Thirty years after your first due date to make the repayment, the loan can get canceled along with the pending amount and interest. However, it is essential that all repayments on the student loan, depending on your earnings, are duly made until the date the SLC decides to cancel your repayment. If not, SLC can still recover the amount you owe.
Repayment plan 5
Thirty years after your first due date to make the repayment, the loan can get canceled along with the pending amount and interest. However, it is essential that all repayments on the student loan, depending on your earnings, are duly made until the date the SLC decides to cancel your repayment. If not, SLC can still recover the amount you owe.
In case the repayments are not made, what happens
You are legally obligated to make the student loan repayment as per the regulations and contract terms. If the repayments are not made, SLC can take the appropriate legal action against you for recovery. A court order as a civil debt can be taken by SLC for repayment of the debt amount with interest in one lump sum as a penalty. This order applies legally, irrespective of whether you are staying in the UK or abroad. All costs in such cases need to be borne by you. This includes the legal costs.
Repayment Student Loan – the end
When you are close to repaying the entire loan – within 23 to 4 months of repaying – you need to make some changes. SLC recommends that you change to Direct Debit. This is crucial to avoid getting a refund because you do not over-repay. Remember to always keep SLC updated with your contact information. SLC can then contact you to make the change to a Direct Debit. All your details can be updated at www.gov.uk/sign-in-to-manage-your-student-loan-balance.
When you have repaid too much, what happens?
Another reason is that it is crucial to offer correct contact details that are up-to-date so that SLC can contact you if you have repaid more. Your contact number, such as mobile number, address, and email address, should be up-to-date. Log into www.gov.uk/repaying-your-student-loan to update the details.
Repayment plan 1
If you have overpaid after the loan is fully repaid, the interest will accrue in your credit balance at the RPI rate or 1% over the Bank Base Rate. The lower one will apply. The interest will accrue for up to 60 days after the SLC informs you about the refund. After 60 days, the interest accrual will stop. Or, it will also stop the day you’re refunded, whichever date happens first.
Repayment plan 2
If you have overpaid after the loan is fully repaid, the interest will accrue in your credit balance at the RPI rate unless the Prevailing Market Rate cap applies. The interest will accrue for up to 60 days after the SLC informs you about the refund. After 60 days, the interest accrual will stop. Or, it will also stop the day you’re refunded, whichever date happens first.
Postgraduate Loan
Interest will accrue for up to 60 days from the date the SLC informs you about the refund at RPI + 3% unless the Prevailing Market Rate cap applies. After 60 days, the interest accrual will stop. It will also stop the day you’re refunded, whichever date happens first.
Repayment plan 5
If you overpaid after the loan is fully repaid, interest will accrue in your credit balance at the RPI rate unless the Prevailing Market Rate cap applies. The interest will accrue for up to 60 days from the date the SLC informs you about the refund. After 60 days, the interest accrual will stop. It will also stop the day you’re refunded, whichever date happens first.
Refund
SLC will refund the due amount to your bank account directly if you have still not claimed it.
Conclusion
Knowing the student loan intricacies is crucial to ensure you’re on the right track with your finances. If you need personalised assistance or professional advice on managing your student loan repayments, consider reaching out to experts. Companies like TaxCan and Cangaf Ltd. specialize in providing tailored financial guidance. You can seek their help to navigate the complexities of student loan repayment.
Previous Blog Posts
Mastering Student Loans, What You Need to Know Part 1!
Student Loan Repayment Plans: Unlock the Best Option for You, Mastering Student Loans Part 2
