Changes To Student Loan Repayments – What It Means For You

You might have heard in the news recently that the Government has announced changes to the way student loans are repaid.

Firstly, it’s best to highlight that this information is valid for repayments between 1 September 2014 and 31 August 2015 & there are two key changes to the way you’ll repay your student loans. The first is to do with the amount of interest you’ll pay, and the second is to do with the income threshold, or the amount of money you can earn before you have to make repayments.

Interest will be calculated based on the Retail Price Index (RPI) from March this year, which was 2.5%. The changes mean that most graduates will end up paying less interest and some will even be able to earn more money before they have to start paying their student loans back. Unfortunately though, it’s not good news all round. Graduates who took out student loans between 1990 and 1998 may find they have to start making repayments when they didn’t have to before.

How will the changes affect me?

If your course started after 2012…

  • Your loan is called an ‘income contingent loan’ because the amount you pay back depends on the amount of money you earn
  • The amount of interest you pay will drop from 6.3% to 5.5% (RPI 2.5% + 3%)
  • When you start paying back your loan, you’ll have to repay 9% of everything you earn above £21,000 each year

If your course started between 1998 and 2011…

  • Your loan is also referred to as an ‘income-contingent loan’
  • Your interest rate will remain at 1.5% until further notice. This is because your interest rate is set at the Bank of England base rate plus 1% or the RPI, whichever is lower. As the RPI is 2.5%, it is calculated on the lower rate of 1%.
  • You currently pay back 9% of everything you earn above £16,910 each year, but from 1 April 2015 this will change to £17,335

If your course started between 1990 and 1998…

This will be the group of graduates who’ll feel the effects of these changes the most.

  • Your loan is also known as a ‘mortgage style loan’ because you pay it back over a fixed number of instalments, regardless of how much you owe
  • The amount of interest you pay will drop from 3.3% to 2.5%, in line with the RPI
  • At the moment your loan only has to be paid back when you earn over £28,775, but from 1 September this will drop to £26,727
  • From 1 September 2014, you’ll only be able to defer making repayments if you earn under £26,727. If you earn more than this and want to defer making repayments, you need to apply for deferral by 31 August 2014
  • If you’ve already deferred repayments on your student loan, these changes won’t affect the agreement you have in place

For more information follow: –

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