What is the difference between UK student loan Plan 1 and Plan 2?
But how exactly do Plan 1 loans work, and what makes them different to Plan 2? Of course, the primary difference in plans is the year and country student loans were withdrawn. But other main differences include the repayment thresholds, interest rates, and when these loans are written off.
Plan 2 refers to a student loan taken out from September 2012 onwards, in England or Wales. Older loans (from England or Wales) and loans taken out in Northern Ireland, are called plan 1 loans.
- Tuition Fee Loans, which cover the cost of tuition fees charged by universities or colleges. ...
- Maintenance Loans, which help with living costs such as accommodation, food, books, and other expenses.
You are on Plan 3 if you are an: English or Welsh student who took out a postgraduate master's loan on or after August 1, 2016; English or Welsh student who took out a postgraduate doctoral loan on or after August 1, 2018; EU student who started a postgraduate course on or after August 1, 2016.
If you're a Scottish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1 September 1998, you'll be on repayment Plan 4. This means you'll pay 9% of the income you earn over the threshold to the Student Loan Company (SLC). This percentage stays the same if your salary rises.
On Plan 1 loans, your repayments are set as 9% of everything you earn above £18,935, whereas with Plan 2, it's 9% of everything above £25,725. In other words, on exactly the same income, people on Plan 1 loans pay much more each year.
Plan 2 student loans are those taken out on or after September 2012 to July 2023 in England or Wales. You'll be on Plan 2 if: You're studying an undergraduate course. You're studying for a Postgraduate Certificate of Education (PGCE) You take out an Advanced Learner Loan.
If you have more than one type of loan, you'll repay them at the same time, as long as your income is over the repayment threshold. Here are some examples of how it could work based on the current UK thresholds. If your monthly income is between £1,657 and £2,274, you'll only make repayments towards your Plan 1 loan.
A tuition fee loan goes towards the cost of your course, up to a maximum of £9,250 per year – which is the full cost of tuition in most cases – and is paid directly to your university or college. A maintenance loan helps with the everyday costs of being a student like accommodation, food and transport.
The Bank of England base rate is currently 5.25%, and this plus 1% is 6.25%. This is lower than the RPI figure from March 2023 which was 13.5%. Therefore, the interest rate on Plan 1 Student Loans is 6.25%.
What is the interest rate for Plan 2?
The Government has announced that – from September 2022 to end November 2022 the maximum Plan 2 and Plan 3 interest rates will be 6.3%. The rate will be 7.3% from 1 December 2022 unless PMR remains below this level.
Repayment plan 5 is a new repayment plan, being introduced for students starting undergraduate and Advanced Learner Loan courses on or after 1 August 2023. You won't be expected to make repayments to your plan 5 student loan until April 2026 at the earliest, even if you leave your course early.
| Balance | Repayment Term | Monthly Payment |
|---|---|---|
| $80,000 | 5 years | $1,546.62 |
| $80,000 | 10 years | $888.16 |
| $80,000 | 15 years | $675.09 |
| $80,000 | 20 years | $573.14 |
Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones. ED will continue to discharge loans as borrowers reach the required number of months for forgiveness.
Cancelling your student loan
If you took out your loan before 1 August 2007 and have kept up your repayments, the SLC will usually cancel any loan plus any interest: when you reach 65. after 30 years of repaying on your repayment due date. if you die before you pay the loan off.
| Income each year before TAX | Monthly Repayment |
|---|---|
| £19,000 | £5 |
| £21,000 | £20 |
| £25,000 | £50 |
| £30,000 | £88 |
You'll only repay when your income is over £480 a week, £2,082 a month or £24,990 a year.
Standard repayment lasts 10 years and is the best one to stick with to pay less in interest over time. Income-driven repayment (IDR) options tie the amount you pay to a portion of your income and extend the length of time you're in repayment to 20 or 25 years.
Pay less over the life of the loan: Because your student loan, like most other debt, accrues interest when you carry a balance, it's cheaper if you pay off the loan earlier. It gives the debt less time to accumulate interest, meaning you'll pay less in the long run.
If you're a student from England or Wales, your Postgraduate Loan will be written off 30 years after the April you were first due to repay. If you're a postgraduate student from Northern Ireland, you're on Plan 1.
What is the interest rate on student loans in Scotland?
The interest rate on your loan is currently 6.25%
Interest starts being added to your student loan as soon as you (or your university) receive the money from the Student Loans Company.
| ACADEMIC YEAR | RATE FOR THOSE EARNING UNDER £27,295 (RPI) | RATE WHILE STUDYING / FOR THOSE EARNING £49,130+ (RPI PLUS 3%) |
|---|---|---|
| 2021/22 | 1.5% | 4.1% (from 1 Oct 2021) 4.4% (from 1 Jan 2022) 4.5% (from 1 Mar 2022) |
| 2022/23 | 7.1% (from 1 June 2023) | 7.1% (from 1 June 2023) 7.3% (from 1 Sept 2023) |
You can change your repayment plan at any time by applying for an income-driven repayment (IDR) plan or by requesting a new plan from your servicer, typically by submitting the necessary application and additional information as needed.
Making loan payments biweekly instead of monthly can accelerate the payoff of the student debt and reduce your total interest costs over the life of the loan. Paying student loans biweekly may be right for you if you're interested in paying more than your required amount due each month.
Income-contingent repayment is an arrangement for the repayment of a loan where the regular (e.g. monthly) amount to be paid by the borrower depends on his or her income.
