Student Loans repayments are changing, and employers must prepare.
Currently, graduates and students who have taken out student loans must repay their loan when they earn an annual salary of £27,295 or more, with repayments at a rate of 9% 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, we will see a new student loan plan in place.
Introduced as Plan 5, the changes affect those taking out loans on or after 1 August 2023.
For these students, the threshold is reduced to £25,000 per year, meaning that graduates will begin repaying their loans when they earn more than this amount.
Repayment rates are also 9% on any income earned above this threshold.
Students on Plan 5 will not make their student loan repayment 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 £25,000, their repayments will stop and restart when their income exceeds the threshold again.
Student Loan Repayment Bands explained
Depending on when people start their courses, students face different loan repayment bands.
Students commencing an undergraduate course, PGCE ( Post Graduate Certificate of Education) or an Advanced Learner Loan on or after 1 August 2023 will be on Plan 5.
For undergraduate courses, PGCE, or students who took out an Advanced Learner Loan or a Higher Education Short Course Loan between 1 September 2012 and 31 July 2023, will be on Plan 2.
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.
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