Borrow Money To Pay Off Student Loans

Who has them?English, Welsh and Northern Irish students whostarted higher education between 1998 and 2011, and Northern Irish students starting after 2012.

Loan type: 'Income-contingent' loans, known as 'Plan 1' loans by the Student Loans Company (SLC).

Current interest rate: 1.1%

How the interest rate is set: The interest rate is the LOWER of the following:

Either: The Bank of England base rate, plus 1%...

Or: The rate of inflation. This is fixed for a year on 1 September based on the Retail Prices Index (RPI) measure from the previous March, though the actual rate is only officially confirmed each August.

March 2021's inflation rate was 1.5%, but currently, the base rate + 1% cap still applies, so the rate for the 2021/22 academic year is 1.1%.

If you're new to interest rates, see our Interest Rates Beginner's Guide.

How much will you repay?You repay 9% ofeverything earned above £19,895 a year (though more accurately it's 9% of anything over £1,657 per month). So earn £25,000 and you'll repay £459 a year; earn £30,000 and it's £909 a year.

If you earn under the threshold but a bonus or overtime earnings pushes you over the £1,657 monthly limit, a repayment WILL be deducted that month. You can claim it back from the SLC at the end of the tax year if your P60 shows total earnings were under £19,895.

How you actually pay it:

For employees: The money is taken automatically from the payroll in the same way as tax (so it never goes in your pocket and there are no debt collectors).

If your salary's over £19,895 a year and repayments aren't being deducted, it's YOUR responsibility to tell your employer. Keep evidence of doing this as, if it doesn't start deducting repayments after you've asked, the possible fine of £1,000s will be your employer's to pay.

Repayments are given to HM Revenue & Customs (HMRC), which then pays the SLC every March. The SLC applies repayments as if it had received them monthly, so you don't pay more interest than necessary (but it doesn't look like that throughout the year).

For the self-employed/those with other income: If you are self-employed, you are responsible for notifying HMRC of payments when you do your self-assessment form.

If you have additional income of £2,000+ from savings interest, pensions or shares and dividends, this will also be treated as part of your income for repayment purposes and you'll need to repay 9% of that, again via self-assessment.

For those living overseas: You'll pay 9% of the amount you earn over the relevant threshold for the country you're living in. See more info on repaying from overseas and the SLC's income threshold table.

Have you nearly paid the loan off? If so, give the SLC a call on 0300 100 0611 – or it may continue taking payments past the point that you have cleared the debts. This is because it only assesses your balance once a year, each March.

If you are nearing full repayment, you have the option to leave the PAYE scheme and make monthly payments by direct debit instead. For full details on this, and how to get money back if you've already overpaid, read our MSE News story about £45m in student loan overpayments.

The impact on credit scores: None whatsoever. This type of student loan is not included on your credit report. However, when applying for a product you may be asked whether you have loans. Plus the fact your take-home pay is reduced may be taken into account (see the Credit Rating guide too).

Can I defer payment? No – but you only repay if you are earning above £19,895 a year. Other thresholds apply if you live overseas – see the SLC's table.

How to overpay: You can make a payment any time you wish, by card, cheque or bank transfer. See the SLC payments page for details.

Any changes due? In general, no.

However, those on 'post-1998' loans see their repayment threshold (how much you need to earn before you start paying) increase with inflation annually (based on the RPI inflation rate in March the year before).

This means you will pay LESS back each year (unless you have pay rises each year), extending the loan's life and potentially the total cost – but giving you more disposable income.

The Government is selling off the remaining £40bn of student loan debt it has (which includes these loans). It says this will not affect the terms of the loans, but it's important to understand the Government can change rules made in the past.