Student loans: five plans, five thresholds and 9% of everything above

A line marked "student loan" comes out of your pay, and almost nobody checks it. They should: there are five plans with different thresholds, and an employer who has you on the wrong one costs you real money.

What decides the size of the deduction?

Your income, and nothing else. The amount you owe has no impact at all on what you repay each month — you pay a percentage of your income above the threshold for your plan.

Income here means what you earn before tax and other deductions, including bonuses and overtime.

What are the thresholds and rates?

Plan 1 — £26,900 a year, £2,241 a month, £517 a week. Plan 2 — £29,385, £2,448 and £565. Plan 4 — £33,795, £2,816 and £649. Plan 5 — £25,000, £2,083 and £480. Postgraduate Loan — £21,000, £1,750 and £403.

You repay 9% of income over the threshold on Plans 1, 2, 4 and 5, and 6% on a Postgraduate Loan plan.

GOV.UK's own worked example: on Plan 1 with an income of £33,000 a year — £2,750 a month — subtract the £2,241 threshold to leave £509, and 9% of that is £45.81, so £45 is taken.

Why was money taken when my yearly income was under the threshold?

Because the calculation runs on the pay period, not the year. If your income in a given month or week goes over the monthly or weekly threshold — a bonus or some overtime will do it — a repayment is taken.

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If your annual income ends up below the yearly threshold for your plan, you can ask for a refund. Keep your payslips and your P60 for that.

Which plan are you on?

You cannot choose. It follows from where and when you studied. Through Student Finance England: a course started on or after 1 August 2023 puts you on Plan 5 for an undergraduate course, a PGCE, an Advanced Learner Loan or student finance through the Lifelong Learning Entitlement; a master's or doctoral course is a Postgraduate Loan plan; a Higher Education Short Course Loan is Plan 2. A course started between 1 September 2012 and 31 July 2023 is Plan 2. A course started before 1 September 2012 is Plan 1.

Student Finance Wales: from 1 September 2012 it is Plan 2, before that Plan 1. The Student Awards Agency Scotland means Plan 4, undergraduate or postgraduate alike. Student Finance Northern Ireland means Plan 1, again for both. If you have more than one loan you can be on more than one plan.

What if your employer has the wrong plan?

Sign in to your online account and download your "active plan type letter", which states the plan you are actually on. Then ask your employer which plan they have you on.

If the two differ, show them the letter so payroll can correct it. Anything you overpaid because of the wrong plan type can be refunded.

How much interest is charged?

Plans 1, 4 and 5 are charged 4.1%. A Postgraduate Loan is charged 6%. Interest is still applied even when you are not working or earning below the repayment threshold.

Plan 2 carries a variable rate. While you are studying it is RPI plus 3%, currently capped at 6%. After you finish or leave the course it follows your annual income: £29,385 or less is 4.1%; £29,386 to £52,884 is 4.1% plus up to 1.9%; £52,885 or more is 6%. The switch happens on the 6 April after you finish or leave.

What if you have more than one loan?

Without a Postgraduate Loan you repay 9% of your income over the lowest of your thresholds, and only a single repayment is taken each payday however many loans you have.

The money is then split. The loan with the lowest threshold is subject to a cap: the gap between the thresholds, multiplied by the rate. GOV.UK's example: Plan 1 and Plan 2, an income of £38,400 a year and a repayment of £86 a month; the gap between £2,448 and £2,241 is £207, and 9% of that is £18, so £18 goes to the Plan 1 loan and the remaining £68 to the Plan 2 loan.

With a Postgraduate Loan in the mix you pay 6% over its £21,000 threshold and 9% over the lowest threshold of any other plan you hold.

When is the debt written off?

Plan 1: if your first loan was paid on or after 1 September 2006, 25 years after the April you were first due to repay; if before, when you turn 65. Plan 2: 30 years. Plan 4: a first loan from 1 August 2007 onwards, 30 years; before that, at 65 or after 30 years, whichever comes first. Plan 5: 40 years. A Postgraduate Loan for students from England and Wales: 30 years.

What changes if you leave the UK?

Leaving for more than three months means you must tell the Student Loans Company by updating your employment details. You are expected to keep repaying unless you can show that your overseas income is below the threshold — a recent bank statement, for instance.

Say nothing and arrears build up, payable on top of your normal repayments. Coming back needs an update too: otherwise you keep repaying at the rate for the country you lived in, which can mean overpaying and a higher interest rate.