How do student loan repayments work?
Student loan repayments are income-contingent. You only repay when you earn above the threshold for your plan. The repayment is automatically deducted through PAYE at 9% of everything earned above the threshold, or 6% for postgraduate loans. If your income falls below the threshold, repayments stop automatically.
Will I repay my loan in full?
Whether you repay in full depends on your earnings over the repayment period. Many graduates, particularly Plan 2 borrowers, will have a balance written off. For these borrowers, the loan can function more like a graduate income tax than a conventional debt.
What is the Plan 5 write-off period?
Plan 5, for students starting from August 2023, has a 40-year write-off period, significantly longer than Plan 2's 30 years. This means more graduates are expected to repay their loans in full compared with Plan 2. The threshold is £25,000 and interest is charged at RPI.
Should I make voluntary overpayments?
Whether to overpay your student loan depends on whether you are projected to clear it in full. If a significant balance will be written off, voluntary overpayments are usually poor financial value because the remainder would have been cancelled anyway. If you are projected to clear the debt in full, overpaying can save interest.