What Is The Student Loan Repayment Threshold?

There’s no avoiding it - university can be pricey! So, for most people, their student loan is the key to financing their higher education.

Alas, sooner or later, the day will come when this money needs to be repaid. But when exactly is this, and how does it all work?

Let’s break it down:

How Does The Student Loan Repayment Threshold Work?

As a student, you’ve probably received money for tuition and maintenance from the Student Loans Company (SLC). It might seem like free money at the time, but unfortunately, it will have to be paid back eventually. For today’s grads, the average student debt is around £45,000. Eesh.

To make this debt manageable, the SLC doesn’t force you to pay up right away. Instead, they wait until you are earning an annual income above a certain threshold. Once this happens, a percentage of your salary will be used to pay back the loan.

What Are The Thresholds For Different Student Loan Repayment Plans?

The student loan repayment threshold is not a single number. In fact, this threshold is different depending on 2 things: your income and which repayment plan you are on.

Your repayment plan is based on the year you withdrew the loan. Each plan comes with a different threshold that you have to be earning before you start paying it back.

The thresholds for each plan type are as follows:

• Plan 1 - Yearly threshold of £22,015, a monthly threshold of £1,834
• Plan 2 - Yearly threshold of £27,295, a monthly threshold of £2,274
• Plan 4 - Yearly threshold of £27,660, a monthly threshold of £2,305
• Plan 5 - Yearly threshold of £25,000, a monthly threshold of £2,083
• Postgraduate Loan - Yearly threshold of £21,000, a monthly threshold of £1,750

Most current grads will be on Plan 2. This is anyone who took their loan out between September 2012 and July 2023.

For Plan 2, as well as for 1, 4 and 5, you will repay 9% of your income every month once over the threshold. Those on a postgraduate loan will repay 6% of their income every month.

If all this is making your head swirl with numbers, let’s break it down into a simple example!

If you’re on Plan 2 and have an income of £33,000 a year, this means you get £2,750 each month.

£2,750 minus the monthly threshold of £2,274 leaves you with £476.

9% of £476 = £42.84. This means you will repay £42.84 each month.

How Do Interest Rates Work Over The Student Loan Threshold?

Needing to repay your loan every month may sound bad enough. But there’s more! Once over the repayment threshold, you will also need to pay interest. Ugh.

How much interest you’re charged also depends on which plan type you’re on. This is currently:

• Plan 1 - 5.5%
• Plan 2 - 7.1%
• Plan 4 - 5.5%
• Plan 5 - For students starting university from September 2023, this will be based on the Retail Price Index.
• Postgraduate Loan - 7.1%

If you’re under the student loan threshold, you may think you’re in the clear regarding interest on your loan. But while earning below the threshold excuses you from repayments, it won’t stop your loan from gathering interest!

Conclusion

No one likes the idea of repaying their student loan. But luckily, you only start repaying it after you’re earning a certain amount. This means if your salary is too low, you won’t owe any money yet.

If you’re unsure about your repayment plan, the answer is just a couple of clicks away on the government or SLC website.

Want to improve your financial literacy and work towards your savings goals? Get started with Prograd today.