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How will my child pay back a student loan?

Paying back student loans

This system relates to England as Wales and Scotland have a different system for student finance arrangements.

The main thing to remember about student loans is that it is your child's loan and not yours. They will repay their loans based on what they earn each year and not on the amount they borrow, which makes it unlike any other loan they might get from the bank, such as a mortgage.

When do you start paying back?

Students do not start paying back the government loans for higher education through the income tax system until they finish or leave their degree course. From the April after a student graduates they become liable to repay these loans for a period of up to 40 years (previously 30 years pre 2023), or until the debt is fully repaid - whichever comes first.

How much do you have to earn before you start paying the government?

Your child will only make repayments when their gross income has reached £25,000 for student who started their course after 1st August 2023 and 27,295 a year for those who started between 1st September 2012 and 31st July 2023. If they are earning less than these amounts - they do not make any repayments. This money is deducted directly from their salary each month at source. So for example, the higher the graduate's income, the higher their monthly repayment and the more money they will repay overall.

How the calculations are made

The amount that the student pays back is based on how much they earn over £27,295 or £25,000 for those starting their course in 2023, per year. As an example if they earned £30,000 they would pay 9% on £2705 which works out at £25.66 per month.

After 30 years, any remaining debt that has not been repaid is completely written off. In effect therefore, this is more like a graduate income tax than a typical loan, with a 30 year cut off. The government have now stated that in future years this will be raised to 40 years.

Interest rates on the student loan

Interest is calculated from the day you take out the loan. While you’re studying, the amount of interest you pay depends on when you took out your student loan. This is made up of the Retail Price Index (RPI) plus 3%. This rate applies until the 5 April after you finish or leave your course. After that, your interest rate depends on your income in the current tax year.

If you’re self-employed, your income is the total income amount on your Self-Assessment form. If you’re an employee, your income is your taxable pay, plus any pension contributions, minus any benefits you get from your employer that are taxed through payroll.

The gov site has lots of useful information about the amount you will need to repay

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