The way in which Student Loans are repaid is changing and employers need to be prepared.
Currently, graduates and students who have taken out student loans are required to repay their loan when they earn an annual salary of £27,295 or more, with repayments at a rate of nine per cent on any income earned above this threshold. The threshold is then adjusted annually for inflation following the Retail Price Index.
However, starting from the academic year 2023/24 a new student loan plan will be introduced.
Known as Plan 5, the changes affect those taking out loans on or after 1 August 2023.
For these students the threshold will be reduced to £25,000 per year, meaning that graduates will begin repaying their loans when they earn more than this amount.
Repayments will be made at the same nine per cent rate on any income earned above this threshold.
Students on Plan 5 won’t be expected to make repayments to their student loan until April 2026 at the earliest, even if they leave their course early.
The repayment period will also be extended from 30 to 40 years, resulting in a longer repayment period for more graduates to repay their loans in full.
If a person’s income falls below the repayment threshold, their repayments will stop and only restart when their income exceeds the threshold again.
Student Loan Repayment Bands explained
There are a number of student loan repayment bands depending on when people began their course. Students beginning a course on or after 1 August 2023 will be on Plan 5.
This is if they are studying an undergraduate course, Post Graduate Certificate of Education (PGCE), or an Advanced Learner Loan.
They will be on Plan 2 if they started their course between 1 September 2012 and 31 July 2023.
This covers those studying an undergraduate course, PGCE, or who took out an Advanced Learner Loan or a Higher Education Short Course Loan.
Those who started their course before 1 September 2012 will be on Plan 1. Students studying or having studied a postgraduate master’s course will be on a Postgraduate loan.
Want advice on the payroll implications of these changes? Call us today.
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