Understand student loans everything you need to know

Old 'mortgage style' system

The interest charged on your loan is linked to the rate of inflation and adjusted in line with the retail price index. Interest is calculated daily from the day your loan starts and is added to your account at the end of each month.

The SLC will write to you in the February after graduation advising you when to start making repayments. They will also give you the opportunity to apply to defer repayments. Unless the SLC agrees to defer repayments they will start collecting repayments from you in the April of that year. Your repayments can be deferred if your gross income (before tax and National Insurance) is below 85% of national average earnings, currently £2,034 per month.

You must ask for a new deferral each year. If you are late in applying for a deferral, you may be asked to start making payments

Repayments are usually made over five years by monthly instalments as a direct debit from your bank account. You will have to agree to this when signing the loan agreement. It is therefore important to keep the SLC informed of your current address and to contact them if you change bank accounts.

It is also important to inform the SLC if you leave your course. A statement is sent out each year by the SLC showing the level of monthly instalments, the interest rate and the total interest added as well as the current balance. There are options to repay the loan earlier or to make top-up payments.

If you do not defer payments and/or payment is missed for whatever reason the SLC will begin recovery action. The agreement is enforceable by taking you to county court or can be passed to debt collectors first. It is important to contact the SLC as soon as possible if you have missed a payment or forgotten to defer in order to avoid court action.

The SLC does not register defaults or missed payments on your credit reference file but if action is taken through the county court and you receive a county court judgment then this will appear on your credit reference file.

If you are disabled there are special repayment and deferment arrangements. If you can show as a result of your disability that you will be permanently disabled your loan will be cancelled. If you are a disabled borrower and your income is above the deferment threshold you can extend your repayments over ten years.
New 'income-contingent' loans

These were introduced in September 1998 to replace the mortgage style loans and from September 2006 loans are available to cover both fees and living costs. The amount of the loan you will receive depends on your year of study, the type of course and the location of your college/university. If you started your course on the mortgage style loan you are likely to continue on the old system.

Warning
Income-contingent loans are not regulated by the Consumer Credit Act.

Interest is linked to the rate of inflation and accrues daily from the date you receive your first loan instalment.

Repayments start from the April after you graduate or leave your course if your gross income exceeds the income threshold. The income threshold is £15,000 or £1,250 per month or £288 per week. The amount that you pay is 9% of the difference between your income and the income threshold.

Repayments will not be over a fixed period as the level of your repayments will rise or fall directly in line with your income. This means that the length of time over which the loan will be repaid will depend on your income after graduation and on the total amount you borrowed.

Disability benefits are not counted as income when assessing your threshold income. In some circumstances, if you are permanently unfit for work, liability for the loan will be cancelled.

nationaldebtline.co.uk