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How repayments are worked out

Most people pay back their ‘income contingent’ Student Loans in the same way as they pay their Income Tax. If you are employed in the UK, your Student Loan repayments will be collected through the Pay As You Earn (PAYE) system.

You don’t start paying back your loans until you reach the repayment threshold. This means that you will begin making repayments when your gross earnings are more than either:

• £1,250 a month
• £288 a week
  

If you are paid at different intervals – for example, fortnightly or every four weeks – these figures are adjusted in line with the annual threshold (£15,000 per year).

If you’re self employed or work overseas

If you are self employed or employed overseas, you will make your repayments in a different way. If you are self employed, you will work out your repayments based on the annual threshold of £15,000 - similar to the way that you calculate your tax and National Insurance.

If you receive income from other sources

If you have any ’unearned income’ from other sources like savings or investments, remember that this counts towards your total income. You’ll need to make extra Student Loan repayments through Self Assessment.

• Repaying student loans through PAYE
• Repaying student loans through Self Assessment
• Repaying student loans when you move overseas

How much you have to repay

If you earn less than the threshold or thresholds that apply to you, you don’t have to make any repayments.

Your Student Loan repayments will be nine per cent of anything you earn over the relevant threshold. Remember that this isn't the same as nine per cent of your total income - you only make repayments on what you earn above the threshold.

If your income through PAYE varies over the year

If you get paid the same each week or month, you will make your repayments in equal instalments. If the amount you earn changes during the year, the amount you repay will be based on each individual PAYE period.

For example, you might earn £1,500 in January and repay £22. If you were paid £1,600 in the following month, your repayment for February would be £31. In both cases you would repay nine per cent of the amount you earned over the monthly threshold of £1,250.

If your total earnings for a particular tax year are not more than £15,000, you can apply for a refund of any PAYE repayments you made during that tax year. If your total earnings are more than £15,000, you won’t qualify for a refund – even if your PAYE income has varied.

• Repaying Student Loans more quickly and getting refunds

How it works in practice

Repayment example one: Jane

Jane pays her Income Tax on her wages through Pay As You Earn (PAYE). She earns £1,500 a month - £250 over the repayment threshold of £1,250 per month.

• Jane's repayments will be nine per cent of £250: £22 a month

Repayment example two: Richard

Richard also pays Income Tax through PAYE. His weekly wage is £350. Over the year, he also gets £2,500 in unearned income from investments.

• Richard’s weekly wage is £62 over the weekly repayment threshold of £288 a week. His PAYE repayments will be nine per cent of £62: £5 a week.
• Richard’s earnings from employment have already put him over the annual threshold of £15,000. On top of his PAYE repayments, he will need to make a repayment through Self Asessment. This will be nine per cent of £2,500: £225 for the year.

Interest on income contingent Student Loans

Student Loans are different from normal commercial loans:

• the interest rate is subsidised by the government
• you don’t have to start making repayments until you’ve left your course (and, for income contingent loans, until you’re earning over £15,000 a year)

An interest rate for income contingent Student Loans is set each September. This is the maximum which will be charged during that academic year.

Interest accrues on Student Loans from the date they’re paid to you until they have been repaid in full.

If you repay your loan through PAYE or Self Assessment, the Student Loans Company will receive details of your repayments from HM Revenue & Customs (HMRC) after the end of each tax year. When these details come through, the amount of interest you are charged will be adjusted to reflect when you actually made the repayments.

• Repaying student loans through PAYE
• Repaying student loans through Self Assessment
• Repaying student loans when you move overseas

Interest from September 2008 to August 2009

The interest rate set for the academic year is the maximum which can be charged, and usually remains the same throughout the year. However, cuts to bank base lending rates triggered a low interest ‘cap’ at several points in late 2008 and early 2009. This meant that the interest rate for income contingent Student Loans was reduced a number of times:

• from 1 September to 4 December 2008, the interest rate was 3.8 per cent
• from 5 December 2008 to 8 January 2009, the interest rate was 3 per cent
• from 9 January to 5 February 2009, the interest rate was 2.5 per cent
• from 6 February to 5 March 2009, the interest rate was 2 per cent
• for 6 March to 31 August 2009, the interest rate is currently set at 1.5 per cent (though this could change)

Interest from September 2009 to August 2010

From 1 September 2009 to 31 August 2010, a zero per cent interest rate will apply to income contingent Student Loans.

More useful links

• Contact the Student Loans Company about repayments