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Student loans thresholds to rise for most borrowers from April

Written by: Emma Lunn
The government has released its annual update to the interest rates and thresholds of income contingent student loans and mortgage style student loans.

The Department for Education has revealed the new repayment thresholds which set the minimum annual salaries at which you start repaying your student loan.

It’s also confirmed that interest rates will drop in September for some borrowers, and rise for others.

How much can I earn before I start repaying my loan?

If your course started before 1 September 2012, or you have a loan from the student finance agencies in Northern Ireland or Scotland, you’ll have a Plan 1 loan that you’ll start paying back when you earn £19,895. This is up from £19,390 a year.

If you began your course after 1 September 2012 in England or Wales, you’ll have a Plan 2 loan. You’ll begin paying off your student loan when you earn more than £27,295 from 6 April 2021. This is up from £26,575 a year.

For pre-1998 mortgage-style loans, the deferment threshold – the annual salary below which you can opt not to repay your loan – will fall from £32,347 to £30,646 from 1 September 2020.

How are interest rates changing?

  • Plan 1 loans

For these loans the rate is set as the lower of RPI or the Bank of England base rate, plus 1%.

From 1 September 2020 until 31 August 2021, the maximum interest rate that can be set for the existing Income Contingent Repayment Loans will be 2.6%.

However, the low interest cap will be triggered, and therefore the rate to be charged from 1 September 2020 will be 1.1%.

  • Plan 2 loans

While studying you’re charged the rate of the RPI index inflation measure, from March (2.6%), plus 3%, so from 1 September you’ll be charged 5.6%.

From the April after you graduate, you’ll be charged variable interest, depending on your income.

Where income is £27,295 or less you’ll be charged RPI (2.6%), rising on a sliding scale to RPI plus 3%, where your income is £49,130 or more.

Postgraduate loans

From 1 September 2020 until 31 August 2021, the interest rate for borrowers in England taking out a Postgraduate Master’s or a Doctoral loan will be 5.6% (RPI + 3%).

The repayment threshold for Postgraduate loans continues to be £21,000.

Mortgage style loans

From 1 September 2020 until 31 August 2021, the interest rate for mortgage style loans will be 2.6%.

The deferment threshold for mortgage style loans will be £30,646.

Any queries from borrowers who have mortgage style loans should be addressed to their loan administrator.

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