stmIn this article, we will be discussing Student Loans Plan 1 or 2 and how student loan repayment works. Continue reading.
A student loan is a type of loan designed to help citizens invest on their future by going for higher education. This loan also covers a person’s associated fees, such as tuition, books, supplies, and living expenses.
What Is The Difference Between Student Loan Plans (1 & 2)?
Plan 1 loans refers to a student loan taken out from 1st September 1998 to 30th August 2012, in England, Northern Ireland or Wales. Younger loans and loans taken out in England or Wales only are called plan 2 loans. The interest rate is usually higher for plan 2, and it doesn’t affect payment.
What Is The Difference Between Student Loans And Other Loans?
The difference between a student loan and personal loan is that, Student loans does not affect your credit score. Also, the student finance repayments don’t start until the APRIL after you’ve graduated and earning above a certain amount.
Even at that, the required payable percentage of your earnings over the threshold is 9% only.
Plan 1 Student Repayment
You’re lucky if you’re on plan 1 student loan because you’ll have lower tuition fee including non-repayable grants and as such, your interest won’t be much compared to the plan 2 student loan.
The only downside to plan 1 student loan is that, your monthly repayment will be more than those who are on plan 2.
The interest rate on plan 1 student loan is usually set each September, the retail price index (R.P.I) rate is usually from March of the same year and the Bank of England base rate is usually plus 1%.
The interest rate on plan 1 is the same, whether you’re studying or graduated unlike plan 2. The plan 1 interest rate does not affect your earnings also.
Plan 1 Student Loan Repayment Amount
You’re expected to pay £19,895/year if you’re on plan 1 student loan (i.e. £1,657/month or £382/week) before tax. The threshold rises on April of each year since 2012. This is why it is important that you keep up to date.
The table below shows what your monthly repayment could look like:
| Annual Salary | Monthly Repayments ( April 2020 – April 2021) |
| £19,895 | £0 |
| £22,000 | £16 |
| £25,000 | £38 |
| £30,000 | £76 |
| £40,000 | £151 |
| £50,000 | £226 |
Plan 2 Repayment
It is correct to say that students who are on plan 2 gets rough of the deal compared to students who are on plan 1. They don’t only pay more fee but their interest rate is also high. And with higher repayment fee comes lower monthly threshold.
However, your loan will likely be written off after 30 years if you can’t meet up with repayment, it means that your debt is bigger than your earnings.
The interest rate here is different when you’re studying and when you’ve graduated. While studying and until the APRIL you graduated, your retail price index (R.P.I) rate is plus 3%. The rate is normally set every September of each year, using the rate from March of the same year.
After graduating, the interest rate on plan 2 student loan is set at retail price index (R.PI.) rate of plus anything from 0% – 3%, this rate depends on your earnings:
If you earn less than £27,295 the interest rate is just retail price index (R.P.I). But if you earn above £27,295 its Retail Price Index (R.P.I) plus a percentage of up to 3%.
Plan 2 Student Loan Repayment Amount
You’re expected to pay £27,295/year if you’re on plan 2 student loan (i.e £2,274/month or £524/week) before tax. If you earn less than that, you won’t have to pay anything until you start earning above the threshold.
The table below shows what your monthly repayment could look like:
| Annual Salary | Monthly Repayments (April 2020 – April 2021) |
| £27,295 | £0 |
| £30,000 | £20 |
| £35,000 | £58 |
| £40,000 | £95 |
| £45,000 | £133 |
| £50,000 | £170 |
Final Words On Student Loans Plan 1 or 2
Student Loans or grants is a means of the UK government helping students invest in their future. This loan can also be written off after some years, if you are unable to meet up with your repayments.
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