What Is a Repayment Threshold?
In the UK student finance system, the repayment threshold is the level of income above which a graduate begins to repay their student loan. Repayments are linked to earnings and not to the size of the debt, so you only pay when your income is above the threshold. If your income falls below it, repayments stop.
How it works
Repayments are calculated as a percentage of your income over the threshold, and they are usually collected through the tax system. For employees, your employer deducts payments from your salary along with tax. Self-employed people pay through their tax return.
For example, if a threshold were 25,000 pounds per year and the repayment rate 9 percent, someone earning 30,000 would repay 9 percent of 5,000, which is 450 pounds per year, or about 37.50 per month. The actual thresholds and rates vary by plan and change over time.
Different plans
The UK has several repayment plans, depending on where and when you started your course. England, Wales, Scotland and Northern Ireland have different plans, with different thresholds, interest rules and write-off periods. Postgraduate loans have a separate threshold and rate, and they are repaid in addition to undergraduate loans if you have both.
Because the details have changed in recent years, always check the current figures on the official government student finance pages.
Interest and write-off
Interest accrues on UK student loans according to the plan, sometimes linked to inflation and income. After a set number of years, any remaining balance is written off. Many graduates do not repay in full, which is why the system is sometimes described as a graduate contribution, similar to a tax, rather than a conventional loan.
Practical points
- Know which plan you are on.
- Check your payslip for the student loan deduction.
- Tell the loan provider if you move abroad, since overseas repayments follow special rules.
- Keep records, and check annual statements.
- Avoid unnecessary overpayments unless you have calculated that it makes sense, since many graduates will not repay in full.
Other countries
Several other countries use income-contingent repayment, including Australia and New Zealand, with their own thresholds. See official guidance for details.
Related terms
See home fee status, loan forgiveness, APR, cosigner and interest capitalization.
Frequently asked questions
How much do I repay above the threshold?
A percentage of your income above the threshold, commonly 9 percent for most plans and 6 percent for postgraduate loans. Check the current rate for your plan.
Do I repay if my income is below the threshold?
No. You do not make repayments on income below it, and interest may still accrue, depending on your plan.
Do thresholds change?
Yes. They are usually updated by the government and differ between plans. Check the official government guidance for current values.