A new Student Loan Plan will be introduced later this year; something employers should ensure they are prepared for.

Currently, graduates and students who have taken out student loans are required to begin making repayments when they earn an annual salary of £27,295 or more.

Repayments are calculated at nine per cent of income earned above this threshold. Typically, the threshold is adjusted each year for inflation following the Retail Price Index (RPI).

However, starting from the academic year 2023/24, a new student loan plan will be introduced.

Lower repayment threshold for new Student Loan Plan

Known as Plan 5, the changes affect those taking out student loans on or after 1 August 2023.

For these students, the threshold will be reduced to £25,000 per year, meaning that graduates will begin repaying their loans when they earn more than this amount.

The rate of repayment will remain at nine per cent of income above the threshold, as with other plan types.

Students on Plan 5 will not be expected to make repayments until April 2026 at the earliest, even if they leave their course prematurely.

The period over which repayments are made will also be extended from 30 to 40 years, resulting in a longer repayment period for more graduates to repay their loans in full.

If a person’s income falls below the repayment threshold, their repayments will stop and will only restart when their income exceeds the threshold again.

Student Loan repayment bands explained

There are a number of student loan repayment bands, depending on when people began their course. As aforementioned, students beginning a course on or after 1 August 2023 will be on Plan 5.

This is the case if they are studying an undergraduate course, Post Graduate Certificate of Education (PGCE), or an Advanced Learner Loan.

They will be on Plan 2 if they started their course between 1 September 2012 and 31 July 2023.

This covers those studying an undergraduate course, PGCE, or who took out an Advanced Learner Loan or a Higher Education Short Course Loan.

Those who started their course before 1 September 2012 will be on Plan 1. Students studying or having studied a postgraduate master’s course will also have a Postgraduate Loan.

An end to end payroll and pay advice service

Our BACS-approved payroll bureau, GH Payscheme, offer an end-to-end payroll service for employers throughout the UK.

As part of our service, we can help you to calculate student loan deductions to ensure that your employees are always making the correct repayments, and we can provide confidential, secure payslips that accurately outline the deductions that have been made.

To talk to us about how we can support you with outsourcing your payroll, contact us today.

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