The last article offered a brief idea on student loans. In this article we will try to answer some of the most common questions like “How to pay back the student loans?”
Well, there are various ways to repay your student loans.
Repaying student loans through PAYE scheme:
If you are working in UK, your student loans can be repaid by the PAYE (Pay as You Earn) system. However, in this scheme you start paying off your debts once you reach the repayment threshold (your gross income reaches either ₤1,250 a month or ₤288 per week).
In this scheme, your employer will subtract your student loan repayments based on your income for that period. At the end of the financial year, your employer will notify HMRC about your repayments. HMRC will send this information to the SLC.
In case you make a job shift, your new employer will continue with the deduction of repayments. You will get a P45 from your previous employer to prove that you are a student loan account holder. You should always keep part 2 and 3 of your P45 safe until you start your new job, and keep part 1A for your own records. Once you enter a new job, pass part 2 and 3 of P45 to the new employer.
Once you submit part 3 of your P45 to HMRC as a confirmation of your new job, student loan repayment amount will be deducted from your first salary. But again, your income must exceed the threshold.
For those who do not have a P45 from their previous job, or those who earn less than PAYE tax threshold or first job, your employer will submit a P46 form to HMRC.
Once you complete your repayments, HMRC will provide the details to SLC. Now SLC will let you know that your student loan is repaid. HMRC will also notify your employer to stop student loan deductions from your salary. Your employer gets a time period of 42 days to execute it.
Paying back student loans through self-assessment:
Do you want to calculate your tax returns by self-assessment? Then you must deduct your student loan from your income. If you are self-employed, then you need send a tax return to HMRC that includes your tax, National Insurance and student loan repayments for an entire year.
Want to pay off your student loans more quickly?
Apart from the repayments through tax system, one can make extra repayments to pay off loans faster. You can opt to make repayments by a credit or debit card like using a Maestro, Solo, and Delta. (Remember that for credit card repayments there is an additional surcharge of 1.5 %.) The minimum amount for paying through a card is ₤5.
How to repay student loans if you move overseas for a considerable time?
The moment you decide to move out of UK for more than three months, inform SLC. After this, you will be required to complete an “Overseas Assessment Form” and provide details of your earnings and employment status. Thereafter, you get a letter from SLC that:
- confirms whether repayments are due
- if applicable, notes your monthly repayment amount
- helps you to arrange direct repayments
What will happen if you do not earn enough to make student loan repayments?
Surely, there’s a way out. You can defer your repayments by sending an application to SLC. This happens when your gross income goes below the current deferment threshold of £2,161 per calendar month (equivalent to £25,936 per year).
Deferments can be made even if you are making repayments. It generally lasts for 12 months. In case you want to continue with this deferment, you will have to make a fresh application every year.
To assess your eligibility for deferment, the Student Loans Company will consider your income alone – you do not need to provide details about the income of spouse, partner, parent or other relatives.
Before you initiate the loan repayment process, you will get an annual statement for the year ending 31st August. As soon as your account becomes due for repayment, you will receive another statement for the period ending 5th April. The next statement will be given to you between a span of 12 to 24 months after that date. This mainly depends on your repayment type and the date assigned by HMRC to SLC to collect the amount.
Special deferment and repayment arrangements for disabled students:
There are many repayment and deferment arrangements for disabled students to pay off student loans. Various disability benefits are:
- Disability Living Allowance
- Disability Premium
- Disability Person’s Tax Credit
- Short-term Incapacity Benefit at a higher rate
- Long-term Incapacity Benefit
- Industrial Injuries Benefit
- Severe Disablement Allowance
- Severe Disability Premium.
So with all these loan repayment schemes at SLC, why are you feeling stressed out?
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