The method of repaying student loans is due to undergo a significant change later this year, and employers must be ready.
At present, graduates and students who have taken out student loans must begin repaying 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 yearly for inflation according to the Retail Price Index.
Nonetheless, a new student loan plan will be introduced starting from the academic year 2023/24.
Referred to as Plan 5, these changes impact those taking out loans on or after 1 August 2023. For these students, the threshold will be lowered to £25,000 per annum, meaning graduates will start 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 an individual’s income falls below the repayment threshold, their repayments will cease and only recommence when their income surpasses the threshold again.
Student loan repayment bands – What you need to know
Several student loan repayment bands exist depending on when people began their course. Students starting a course on or after 1 August 2023 will be on Plan 5.
This applies if they are studying an undergraduate course, Postgraduate Certificate of Education (PGCE), or an Advanced Learner Loan.
They will be on Plan 2 if they commenced their course between 1 September 2012 and 31 July 2023.
This includes those studying an undergraduate course, PGCE, or who took out an Advanced Learner Loan or a Higher Education Short Course Loan.
Individuals who began their course before 1 September 2012 will be on Plan 1. Students studying or who have studied a postgraduate master’s course will be on a Postgraduate loan.
Seeking advice on the payroll implications of these changes? Contact us today.
