Student loan repayments

Student loan repayments – Carter Backer Winter LLP

This article was first written for and printed on AccountingWEB.

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

According to the Higher Education Statistics Agency, the whole variety of undergraduates in 2019/20 had been 1,889,475, broadly according to the earlier yr. The not too long ago printed House of Commons Research Briefing: Student loan statistics, states that the worth of excellent student loan money owed 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 not have the ability to profit from a tax-free grant, which was once value round £3,500. Instead, it has been changed by a upkeep loan. Undergraduate students who started their course earlier than the modifications got here in will proceed to be eligible to use for the grant.

In 2017 the Government fastened the college price cap at £9,250, a rise of £250 from 2016. This has remained frozen since then and is about to stay at that stage for one more yr underneath authorities proposals. In May 2019 an unbiased report was printed, which really useful the price cap needs to be decreased to £7,500.

Also, in 2017 the Government elevated the student loan reimbursement threshold to £25,000, which is expanded on beneath.

Student loan debt

Once an individual has accomplished their research, they may have a debt made up of tuition price loans, upkeep loans and postgraduate loans, all repayable to the Student Loans Company (SLC). Repayments of the loan will solely must be made as soon as the individual is incomes (both via employment or self-employment) above the reimbursement threshold. Of course, the individual might select to repay the loan sooner, which will be completed with out triggering any penalty.

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Student loan repayments for individuals who are employed are collected by way of PAYE and paid over to HMRC who then allocate these funds to the SLC. Therefore, if the individual is employed, the payroll group might want to set up which loan plan the individual was on to then work out what stage of reimbursement must be collected.

If the individual is self-employed, the annual quantity to be repaid shall be decided by what loan plan the individual is on and their earnings. The reimbursement shall be calculated by way of their self-assessment tax return, and the quantity due is paid over to HMRC after which allotted in opposition to the SLC debt.

If the individual is a shareholder of an organization, their dividends may also be taken under consideration, when figuring out what reimbursement is due. Trust revenue can be counted in direction of earnings for the needs of what reimbursement is due.

Repayment threshold

The reimbursement threshold will rely upon which of the 4 present plans the individual is on. Broadly the plans are primarily based on when the student began an undergraduate course or postgraduate course. See beneath the thresholds for 2021/22:

  • Plan 1: When an individual earns (employed or self-employed) is over £382 per week, £1,657 a month or £19,895 a yr (all earlier than tax and another deductions).
  • Plan 2: When an individual earns over £524 per week, £2,274 a month or £27,295 a yr (all earlier than tax and another deductions).
  • Plan 3: When an individual earns over £480 per week, £2,083 a month or £25,000 a yr (all earlier than tax and another deductions).
  • Postgraduate loan (a Master’s loan or a Doctoral loan): When an individual earns over £403 per week, £1,750 a month or £21,000 a yr (all earlier than tax and another deductions).
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If an individual’s earnings don’t exceed the edge, repayments will nonetheless be due if the individual has different taxable revenue exceeding £2,000 (which is coincidentally the identical quantity because the dividend allowance) and the whole revenue within the yr exceeds the reimbursement threshold.

The quantity repaid once more relies on the plan:

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

Alternative choice

Chris Clayton from CBW Financial Planning typically works with households seeking to fund youthful members of household to attend increased training with out 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 factors

It is significant that the individual is conscious of which loan plan they’re on. Any repayments made to the fallacious plan shall be misplaced. If there may be any uncertainty, they need to contact HMRC.

An individual with a student loan ought to ceaselessly examine their annual assertion from the SLC. If they’re near repaying the total loan, they need to arrange a direct debit as an alternative of getting this collected by way of their PAYE revenue or via their self-assessment tax return.

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The payroll group won’t be able to cease accumulating the loan reimbursement till they’ve acquired a cease discover which is often issued by HMRC.