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Know how much you need to earn before repaying your student loan? You're probably wrong

31st March 2015

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How much do you have to earn before you start repaying your student loan?

I was sure it was £21,000. This was the general consensus, since our final year (2010/11), of all those I knew at Lancaster University. It was like this: for 2011 graduates, the lower earning threshold was £21,000. Before our year it had been £15,000. So, we were lucky.

It turns out, though, that we weren’t lucky – and neither were we correct.

The actual amount is £16,365, but this seems to have fallen under the radar of almost everyone I’ve spoken to.

Maybe this was just a bit of misinformation that had spread at Lancaster? I asked a couple of people who recently graduated from Southampton, and they thought it was £15,000. Others, from various different universities, guessed at between £16,000 and £18,000.

From this it transpired that we’re woefully confused about the amount we’re supposed to be paying back, and when. And after a few minutes of digging, it’s not really surprising that we’re unclear about the terms of our debt. Which, let’s not forget, is a very, very big one.

As financially responsible (dare we say it - independent?) adults, we should know exactly what is going on with the debt we racked up through those three/four years of library books and rubbish clubbing and Virginia Woolf lectures.

In July 2013 I started paying an automatic £27 per month to the Student Loans Company (I’d previously been paying £4 a month, but let’s ignore that because, well, it was £4 and I just didn’t notice.)

After a quick chat with payroll and an explanatory Google search, I was informed that the lower threshold was in fact £16,365 – not £21,000 as I had previously thought (and as had previously made me believe with their admission that “Each month you pay back 9% of any income over £21,000.”)

I accepted this on the grounds that whichever official sounding finance site I visited last July (clearly, I can’t remember which it was) said so, although I did feel a bit confused about why we’d all thought it was £21,000 and why also believed this. Where had we plucked this now seemingly arbitrary number from?

The issue came up again this week whilst I was reading the newly published Money Manual, a finance guide for students published by The Money Charity. According to the Manual, £16,365 is lower limit in Scotland and Northern Ireland, whilst in England it’s still £21,000.

Intrigued, I took my queries back to payroll, and the internet, and this is what it had to say.  

According to the NUS, everyone who started university after 1st September 1998 (which presumably is everyone reading this article) has an Income Contingent Loan.

A bit of digging showed me that there are two types of Income Contingent Repayment Plans.  

The NUS helpfully explains that those who were funded by the authorities in Scotland or Northern Ireland OR lived in England/Wales and took out a loan before 1st September 2012 (my year group included) is repaying their loan according to ‘Plan 1’. ‘Plan 1’ requires that 9% of your income is automatically deducted from your pay once you earn above £16,365 (this rose from £15,795 on 6th April 2013.) The remaining debt will be written off 25 years after repayments began.

If you took out your student loan in England or Wales on or after 1st September 2012 (and are therefore probably at uni at the moment) you will repay according to ‘Plan 2’ – so 9% once you earn once you earn £21,000. No automatic repayments will be taken before April 2016 and your debt will be written off 30 years after you begin repayments.    

The Money Charity’s Money Manual is correct: £16,365 is the lower limit for those with a Plan 2 loan in Scotland and Northern Ireland, whilst for those on Plan 2 in England it’s still £21,000., of course, states that there will be “no repayments” if your income is below £21,000 – but doesn’t specify that this is only for those taking out loans after 1st September 2012.

With the lack of explanatory information here we can probably be forgiven for our confusion after taking this as being relevant to those who had graduated the year before – especially as two years on from graduation we’re most likely to be the ones who are searching for this information. breaks it down further for those on Plan 1 and for those on Plan 2.

So, for those who started university in 2008 (my graduating class) to those who started in 2011 (currently in third year) – let’s make this clear: £16,365.

For those currently in first and second year of university, everyone applying now, and those who plan to attend in the future (at least until the system changes again): £21,000.

Phew. I’m glad we cleared this up, although I’d rather the information on this subject was clearer – not many students or graduates have the time to dig into the financial depths of the internet for editorial purposes.

The Money Charity’s Lauren Roberts says: “The information can be very confusing, that is why we try to encourage students to really understand what they are taking on, and what it means for them beyond university.”

If you want more information on student loans and the repayment process, read The Money Charity’s guide to student loans here.

This article was orginally published on this site in July 2014. 

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