If you started your course in or after 1998, the amount you repay on your student loan will be based on how much you earn.
Most people pay back their 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:
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).
f you have any “unearned income” from sources outside your employment – for example, from savings or investments – remember that this counts towards your total earnings. You’ll need to make extra student loan repayments through Self Assessment.
If you are employed overseas, or if you are self employed, 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 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 thresholds. 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 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 were paid £1,600 in the following month, your repayment for February would be £31. In both cases the repayment equates to 9% 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.
Repayment example one: Jane
Jane is employed, and pays her taxes through PAYE. She earns £1,500 a month - £250 over the repayment threshold of £1,250 per month.
Repayment example two: Richard
Richard works full time, and pays his taxes by Pay As You Earn (PAYE). His weekly wage is £350. Over the year, he also gets £2,500 in unearned income from investments.
The interest rate charged on student loans is linked to the rate of inflation, based on the Retail Prices Index.
The interest rate for student loans applies from 1 September to 31 August each year. From 1 September 2008 to 31 August 2009, the rate is 3.8 per cent.
Taking inflation into account, the value of the amount you pay back will be more or less the same as the value of the amount you borrow - no one makes any profit on the loan.
Interest accrues on your loan until it has 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 and Customs (HMRC) after the end of the 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.
This means that you won't be charged interest on the part of the loan you have already paid back.