Tax Consultant Carter Backer Winter
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Issues with student loan repayments

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To mark International Students’ Day on 17 November, Reshma Johar reflects on the challenges former students face dealing with student loans.

16th Nov 2021
Tax Consultant Carter Backer Winter
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According to the Higher Education Statistics Agency, the total number of undergraduates in 2019/20 were 1,889,475, broadly in line with the previous year. The recently published House of Commons Research Briefing: Student loan statistics, states that the value of outstanding student loan debts in UK/ England reached £160 billion by 31 March 2021.

Recent tinkering’s to student loans

Since 2016/17 students coming from underprivileged backgrounds are no longer be able to benefit from a tax-free grant, which used to be worth around £3,500. Instead, it has been replaced by a maintenance loan. Undergraduate students who began their course before the changes came in will continue to be eligible to apply for the grant.

In 2017 the Government fixed the university fee cap at £9,250, an increase of £250 from 2016. This has remained frozen since then and is set to remain at that level for another year under government proposals. In May 2019 an independent report was published, which recommended the fee cap should be reduced to £7,500.

Also, in 2017 the Government increased the student loan repayment threshold to £25,000, which is expanded on below.

Student loan debt

Once a person has completed their studies, they will have a debt made up of tuition fee loans, maintenance loans and postgraduate loans, all repayable to the Student Loans Company (SLC). Repayments of the loan will only need to be made once the person is earning (either through employment or self-employment) above the repayment threshold. Of course, the person may choose to repay the loan sooner, which can be done without triggering any penalty. 

Student loan repayments for those who are employed are collected via PAYE and paid over to HMRC who then allocate these funds to the SLC. Therefore, if the person is employed, the payroll team will need to establish which loan plan the person was on to then work out what level of repayment needs to be collected. 

If the person is self-employed, the annual amount to be repaid will be determined by what loan plan the person is on and their profits. The repayment will be calculated via their self-assessment tax return, and the amount due is paid over to HMRC and then allocated against the SLC debt.

If the person is a shareholder of a company, their dividends will also be taken into account, when working out what repayment is due. Trust income can also be counted towards earnings for the purposes of what repayment is due.

Repayment threshold

The repayment threshold will depend on which of the four current plans the person is on. Broadly the plans are based on when the student started an undergraduate course or postgraduate course. See below the thresholds for 2021/22:

  • Plan 1: When a person earns (employed or self-employed) is over £382 a week, £1,657 a month or £19,895 a year (all before tax and any other deductions).
  • Plan 2: When a person earns over £524 a week, £2,274 a month or £27,295 a year (all before tax and any other deductions).
  • Plan 3: When a person earns over £480 a week, £2,083 a month or £25,000 a year (all before tax and any other deductions).
  • Postgraduate loan (a Master’s loan or a Doctoral loan): When a person earns over £403 a week, £1,750 a month or £21,000 a year (all before tax and any other deductions). 

If a person’s earnings do not exceed the threshold, repayments will still be due if the person has other taxable income exceeding £2,000 (which is coincidently the same amount as the dividend allowance) and the total income in the year exceeds the repayment threshold.

The amount repaid again depends on the plan:

  • Plan 1: 9% of amounts earned over the threshold.
  • Plan 2: 9% of amounts earned over the threshold.
  • Plan 3: 9% of amounts earned over the threshold.
  • Postgraduate loan (a Master’s loan or a Doctoral loan): 6% of amounts earned over the threshold.

Alternative option

Chris Clayton from CBW Financial Planning often works with families looking to fund younger members of family to attend higher education without triggering a student loan debt.

"It is natural for parents and grandparents to want to help their children. There are many options but there are also things that need to be considered and potential pitfalls too," Clayton commented.

"Whether you are lump sum funding or pre-planning with regular savings, it is all about doing the numbers and fully understanding the various tax wrappers available. I would always suggest taking professional advice and the sooner the better."

Final points

It is vital that the person is aware of which loan plan they are on. Any repayments made to the wrong plan will be lost. If there is any uncertainty, they should contact HMRC.

A person with a student loan should frequently check their annual statement from the SLC. If they are close to repaying the full loan, they should set up a direct debit instead of having this collected via their PAYE income or through their self-assessment tax return.

The payroll team will not be able to stop collecting the loan repayment until they have received a stop notice which is usually issued by HMRC.

Replies (4)

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By Paul Crowley
16th Nov 2021 14:28

"Final points
It is vital that the person is aware of which loan plan they are on. Any repayments made to the wrong plan will be lost. If there is any uncertainty, they should contact HMRC."

If true then is this the state stealing contributions?
Even if the taxpayer knows the plan, easy for employers to tick the wrong box.
Can we trust HMRC to allocate the money to the correct person?
Can HMRC IT systems be trusted?

Thanks (1)
Replying to Paul Crowley:
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By Hugo Fair
16th Nov 2021 21:43

Although a reasonable Noddy guide to the topic of SL, there is nothing in the article to warrant the "Issues with student loan repayments" title ... what Issues?

And Paul has homed in on the only untruth - "Any repayments made to the wrong plan will be lost" is categorically not the case, except in the rare case where taxpayer has more than one type of unpaid SL and a deduction is marked for the wrong one of these.
In that scenario the payment to the 'wrong' plan will not be recoverable because it really is an unpaid balance outstanding - it is merely being (partially) paid off unnecessarily early. But this doesn't equate to 'lost'.

And in normal circumstances, a payment against the wrong plan type (where taxpayer does not have a loan of that type) will be repayable by SLC - just as it is when, through HMRC or Employer error, deductions are taken erroneously from someone without any outstanding SLs.

Just like getting money back out of HMRC it will take some effort (and a lot of patience) to get the money either rebated or re-allocated to the correct SL account - but such payments are NOT lost!

Thanks (2)
Replying to Paul Crowley:
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By LucyCharles
17th Nov 2021 10:31

I was very interested in this article as it was headed 'Issues'. Normally students can view last years repayments within the SL website in September/October but this year they are still unavailable??? I have several Self-Assessments I am unable to complete due to lack of figures. Does anyone else have this 'issue'?

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By Rick Deckard
16th Nov 2021 16:23

No mention that loans are written off after a period of time?

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