Repaying student loans can be challenging, especially when you are self-employed in the UK. However, with the right strategies and planning, it is possible to manage your student loans while building your business. In this article, we will discuss some tips for repaying student loans while self-employed in the UK.
How much do I need to earn before repayment starts?
2023/2024 Earnings (Before Tax) | Plan 1 | Plan 2 | Plan 4 |
Weekly | £423.36 | £524.90 | £531.92 |
Monthly | £1,834.58 | £2,274.58 | £2,305 |
Annually | £22,015 | £27,295 | £27,660 |
How and when are repayments made?
Repayment of your student loan is automated through the tax system and ceases once you have fully paid off your loan. This rule applies regardless of whether you are self-employed or employed by a company.
For full-time courses, repayment begins in April following the completion or departure from your course, but only if your income exceeds the repayment threshold. For example, if you graduate in June 2019, your repayment period would start in April 2020 if your earnings meet the required threshold.
For part-time courses, repayment is scheduled to commence in April, either four years after the start of your course or the April following your course completion or departure, whichever occurs first. However, repayment is only required if your income exceeds the repayment threshold.
What's the difference between the plans?
Repayment Plan | Eligibility | Loan Repayment | Repayment Term | Loan Forgiveness |
Plan 1 | Pre-September 2012 loans and Scottish/Welsh loans post-September 2012 | 9% of income above the threshold | 30 years | After 30 years if not repaid |
Plan 2 | English and Welsh loans post-September 2012 | 9% of income above the threshold | 30 years | After 30 years if not repaid |
Plan 4 | Scottish loans post-September 2021 | 15% of income above the threshold | 30 years | After 30 years if not repaid
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What about a Postgraduate Master's Loan or Postgraduate Doctoral Loan?
Loan Type | Repayment Start | Minimum Income Threshold |
Postgraduate Master's Loan | First April after course completion | £1,750 per month / £21,000 per annum |
Postgraduate Doctoral Loan | First April after course completion or April four years after course start | £1,750 per month / £21,000 per annum |
If you're a Scottish or Northern Irish student who took out a Postgraduate Tuition Fee Loan or Postgraduate Living Cost Loan (Scotland only) you'll start to repay these once your earnings are at £18,330 per year.
To determine your payment amount, follow these steps:
Calculate your annual gross income by adding together your gross salary, gross dividends, and any other earnings.
Deduct the applicable threshold from your annual gross income: either £20,195 (Plan 1), £27,295 (Plan 2), or £25,375 (Plan 4) to identify the amount exceeding the threshold.
Calculate your student loan repayment for the year, which will be 9% of the excess amount.
The resulting balance represents your annual payment. To avoid fines or penalties, ensure that you submit your annual Self Assessment and make payment for all outstanding tax liabilities, including your student loan, by the HMRC deadline of January 31st.
Early repayments
There is no penalty for paying some or all of your loan early. However it's worth noting that optional payments of student loan do not reduce the amount HMRC will expect you to repay via your self assessment.
If your loan is nearly paid off
If you know that you'll pay off your loan within the next two years, make sure to mention it on your Self Assessment tax return. By submitting your online tax return to HMRC before November 1st, you can avoid paying more than necessary.