 Many years later, as you step down the stage, it suddenly hit you how close you are to realizing your dreams when you finally walk up to your parents holding a hat in one hand and a degree in the other. You are now a degree-holder and you did it all by yourself, with of course a little help from the Student Loans Company. You are finally going out there to make a name for yourself. It's time to repay your student loans, too. Don't worry – the government will let you gain some stable footing first before it asks anything in return. Paying back what you owe isn't really as hard as it sounds. The salary threshold What students tend to overlook, what the Student Loans Company hopes to make clear time and time again, is that there is a salary threshold that the student—now a graduate—must meet before the government can start making deductions from his payslip. This means that if the student fails to meet this salary threshold the government can't and won't force the student to start making his repayments. As of June 2008, the salary threshold for courses that started in or after 1998 is set at £15,000 a year. This amount is equivalent to:
The annual repayment amount is currently 9% of anything you earn past the salary threshold. Take note: students get this wrong all the time. It is not 9% of your annual earnings, but 9% of what goes over the £15,000 threshold. For example, let's say you earned £16,000 for 2007. So 9% of £1,000 is £90. That's how much the HMRC is entitled to deduct from your payslip for that year – not £1,440 (9% of £16,000 is £1,440). Deductions are made every payslip. But what if deductions are made and you compute your earnings at the end of the tax year and realized you didn't make the salary threshold? Then you can apply for a refund. The government is more than happy to give back your money so long as it could verify that you didn't make £15,000 the previous year. It should be noted that disability-related benefits don't count toward the salary threshold even if they're taxable. Repayments made easy Depending on your circumstances, there are several ways to repay your student loan. Let's hear them out. Repay student loans through PAYE It is the employer's duty to calculate and deduct student loan repayments from your salary if you work in the UK and pay taxes through the Pay As You Earn (PAYE) Scheme. It's also the employer's responsibility to advise the HMRC of how much you repaid the previous year based on your earning. This is possibly the easiest way to pay back your student loan. Every start of the year, the HMRC is schedule to instruct employers how to compute for deductions for employees with remaining balances from their student loan. They also advise employers when to start and when to stop deducting from your salary. This is between the HMRC and your employer; you are not involved in this process. The only time you need to be involved is when you change jobs. You should keep certain documents and records so your new employer can continue making deductions based on your previous repayments. When changing jobs, you should:
The new employer will then send part 3 to HMRC to confirm your new employment. Deductions should take effect on your first salary provided your new exceeds the salary threshold. It is advised that you keep these documents as you might find a use for them later on:
Repay student loans through Self Assessment If you're self-employed or do freelance work, you are required to file a tax return to HMRC so they could keep tabs of your earnings. HMRC will calculate your student loan repayments for the previous year. Later HMRC will ask you to make your repayments before the end of the tax year. HMRC is happy to do the computations for you if you send your tax return before September 30. Otherwise you'll have to do the computations yourself. If you have questions, contact your local tax office. Repay student loans from overseas But what if you have to move overseas? Are you still considered a UK taxpayer? In this case the options available to you depends first and foremost on your circumstances. If you're looking to spend more than three months overseas, you need to contact the Student Loans Company and inform them of your move. Then you will be required to complete an Overseas Income Assessment Form for details about your employment and income status. Afterwards expect to receive a letter from the Student Loans Company detailing the following information:
You don't have to inform the Student Loans Company about your traveling overseas if you plan to be back within three months. Some notes regarding the Overseas Income Assessment Form:
The salary threshold still apply when you work abroad. But there are certain issues you need to be aware of. For example, differences in living costs can really mess up how you compute for your salary threshold. You need to personally consult with the Student Loans Company about this matter and find out more about the hidden consequences of paying your student loan from aborad. You can also visit the Directgov website for a list of repayment thresholds in different countries. Take note that you will be subject to various penalties if you fail to report your being gone from the UK for more than three months. Lots more information It is possible to make additional payments if you feel you have the money to afford it. For instance, you received a mid-year bonus or just recently got promoted. In any case, you can make additional payments by writing your student reference number on the back of the cheque and mailing it to the Student Loans Company. You can also make payments using credit cards or direct debit. Ask a Student Loans Company representative for advice on this matter. You just read all you need to know about getting a student loan in the UK: from applying for a loan to paying it back through the PAYE system. Next we'll provide some financial advice about these loans, as well discuss the “grown up” responsibilities that come with it. |