Loans from the Student Loan Company work very differently to other types of debts.
Sections
Not like other debt
It’s important to recognise that loans from the Student Loan Company (SLC) are quite different to credit cards, personal loans, or overdrafts.
For a start, repayments aren’t optional: unless you’re overseas or self-employed, they’re taken straight from your salary before it reaches your bank account.
Secondly, your monthly repayments are based on how much you earn – not the size of the debt - meaning that losing your job or having a low paid role won’t land you in trouble.
Finally, student loan debt doesn’t appeal on your credit file, meaning a large student loan debt won’t impede your ability to borrow. Lenders only consider the amount you repay each month.
This guide looks at all Student Loan Company loans, how to pay them back and the penalties you need to be aware of.
How much will I owe?
This ultimately depends on what you studied, where you studied it and for how long.
Those who study in London will have larger balances due to the larger living cost loans they are eligible for.
The average graduate in England beginning to pay off their loans in 2018 owed £34,800, according to the SLC.
There were lower figures for Northern Ireland (£22,440), Scotland (£13,230) and Wales (£21,520).
Don’t forget, however, that your debt will increase because of interest payments.
English and Welsh students who started university before 2012, as well as current Scottish and Northern Irish students, are on Plan 1 loans with an interest rate of 1.75%.
If you’re English or Welsh and started university after 2012, you are on a Plan 2 loan. Your interest rates rise with income, from a minimum of RPI (currently 3.3%) to a maximum of RPI plus 3% (currently 6.3%).
However, the actual amount you owe doesn’t matter much, as your repayments are based upon your income.
Read more: the best student bank accounts 2018/19
Tuition Fee loans and Maintenance Loans
Grants
It is possible to get extra money that doesn’t need to be repaid.
The best way to find what you’re eligible for is to use the student loan calculator.
You should certainly look out for grants if you have children, are disabled, or are studying medicine, dentistry, healthcare, social work or teaching courses.
It’s also worth searching for charitable grants on the Turn2Us website.
Wales, Scotland and Northern Ireland
When you start repayment
If you’re English or Welsh and have a Plan 2 loan, you’ll only have to start repaying your loan when you’re earning £25,000 a year, £2,083 a month or £480 a week.
If you’re Scottish or Northern Irish, or are English and started university before 2012, and have a Plan 1 loan the threshold is slightly lower: currently £18,33 a year, £1,527 a month or £352 a week.
That threshold is adjusted for foreign countries, depending on local living costs.
If your salary is below the threshold, or you’re unemployed, you shouldn’t have to make any repayments – but to be safe, contact the SLC to tell them you’ve been made unemployed.
Compare and apply for student bank accounts on loveMONEY's comparison site
Paying it back
If you are paid a salary, the SLC simply takes 9% of your earnings above the repayment threshold.
So, someone living in England, earning £30,000 a year, is earning £5,000 above the threshold. 9% of £5,000 means repayments of £450 a year, or £37 a month.
When you start your new job, make sure you inform your HR department and they will arrange with the SLC to commence repayments.
If you’re self-employed, you repay your loan to HMRC as part of your self-assessment tax return.
If you live abroad, you will be expected to notify the SLC of how much you’re earning each year and set up a direct debit or debit card payment to repay your loan.
You’ll generally also be expected to supply evidence of your earnings, such as payslips.
Your repayments will still equate to 9% of your earnings above the repayment threshold.
Penalties
Should you overpay?
It is possible to make voluntary extra repayments to your student loan debt.
This is unlikely to save you money, however.
With mortgages or personal loans, overpayment now means lower interest charges later. But with student loans, your repayments are fixed at 9% of your income above the threshold. Even if your loan racks up huge interest charges, your repayments remain the same.
Eventually, the remaining balance on your loan will be written off: currently, 30 years after you graduate. The Institute for Fiscal Studies estimated 77% of those taking out student loans last year would have some of their loans written off.
Only the richest 23% of graduates, those who will repay their entire loan, could benefit from overpayment. Yet even they could gain more benefit from using that money to get on the property ladder or save it into their pension.
Read our Mastering Money in Your 20s guide for ideas on what to do with your savings.
Overdraft and credit card debt
University is expensive and whilst we don’t advise racking up overdraft and credit card debt, it does happen.
This debt is completely different from Student Loan Company debt: it does affect your credit rating, repayments aren’t fixed, and you should pay it off as soon as possible.
Start by repaying off the debt with the highest interest rate. This is most likely to be your credit card, because most student bank accounts have interest-free overdrafts (but always check).
If you can’t manage payments and need help, we’ve put together a list of debt charities where you can get free advice.