Robert is a British citizen and research graduate. He has been a qualified teacher for more than two years. He lives and works in China.
The Student Loan System in Britain
The student loan system in Britain is astounding. The process is further muddled owing to the very structure of the country divided as it is into different nations: England, Wales, Scotland and Northern Ireland. Indeed, each individual nation has their own rules for administering and reclaiming the money loaned to their (naïve, some would argue) child-students. Additionally, if you decide to live and work abroad the process you need to go through is ever daunting. I introduce this to you today. First, let’s have some details and background.
The Student Loan Company - Repayment Plan 1
Once you have finished your university, graduated and are within work, the way you pay back the loan also differs from one individual to the next. The difference is based on when you started to study, with the pivot point being 1 September 2012. For readers from abroad, and those in Britain with slight knowledge, one will provide a little detail.
For readers from abroad, and those in Britain with slight knowledge, one will provide a little detail.
Plan 1 is for individuals who started to study at university BEFORE 1 September 2012. They are required to start repaying their loan from the April following the date they graduated or left their course. They will be required to pay 9% of their salary before tax above the current year’s threshold (2016-2017 = GBP 17, 495). Those earning under this, of course, are not required to pay anything but interest will still accrue.
The interest for Plan 1 is currently held, until further notice, at 1.25%. For Americans out there, I know, this is incredibly low. Since the Student Loan system began, under Plan 1, interest rates have reached a high of 4.8% (2007-2008) and a low of 0.0% (2009-2010).
Below is a video outlining the current loan amounts available to students.
Student Finance in Britain
The Student Loan Company - Repayment Plan 2
Plan 2 is for individuals who started to study at university AFTER 1 September 2012. This plan is more complicated. Repayments are taken from the salary during any pay period where earnings before tax are over the threshold. The pay period could be every week, four weeks or calendar month.
The thresholds are:
GBP 404 a week
GBP 1, 750 a month
GBP 21, 000 a year.
As with Plan 1, Plan 2 requires individuals pay 9% of said salary above the threshold to the outstanding loan.
For fun, then, someone with a GBP 30,000 student loan and an annual income of GBP 22, 000 before tax would only be required to pay GBP 7. If you’d prefer, GBP 84 per year.
What about interest? Plan 2 is far more devilish than is Plan 1. Interest is charged from the day the first payment is made until the loan is repaid in full. The interest is added to the total amount owed each month.
The interest amount is calculated from the UK’s The Retail Price Index (RPI) which is a measure of the cost of living inflation rate. The interest is on a sliding scale but the maximum interest one could pay is RPI + 3%. That means, then, for 2016-2017, with RPI at 1.6%, the total maximum interest paid is 4.6%. This has been as high as 6.6% (2012-2013).
For some people on Plan 2, the idea of the loan amount and prospect of paying them off has pushed them to attempt avoiding repayments.
Living and Working Overseas
So what if you don’t remain in Britain for work, choosing instead to live and work abroad? Well, many graduate students have attempted to avoid paying back the money loaned to them, forcing the government to take firmer action.
Tougher Government Action
- Student loan 'could land you in court' if you move overseas - Telegraph
More and more graduates are seeking job opportunities abroad but using a stint overseas as an excuse to avoid repaying debt could have serious financial repercussions.
I, however, have not followed such a deviant path, instead opting to follow the required steps to pay back my student loan. Knowing, as you do, the differences between Plan 1 and Plan 2 are many, luckily the process of repaying one’s student loan from abroad is the same.
Once you are aware you’re going to be working abroad for more than three months, you are required to complete the Overseas Income Assessment.
Overseas Income Assessment
In addition to this, you’re also required to send evidence to prove your income. Usually, you will need your contract, wage slips etc.
Evidence for Overseas Income Assessment
You’ll be wondering, how much are you required to pay back? Does it depend on the country you live and work? In short, yes.
There are more thresholds. For example, if you work in Argentina, paid in the Argentine Peso, and your earnings exceed GBP 7, 005 per year before tax you’ll be liable to repay. That is, you’ll be liable to repay 9% of your salary above that amount, as discussed above. The interest will calculate depending on the plan your loan is within. The full list can be found here:
For example, if you work in Argentina, paid in the Argentine Peso, and your earnings exceed GBP 7, 005 per year before tax you’ll be liable to repay. That is, you’ll be liable to repay 9% of your salary above that amount, as discussed above. The interest will calculate depending on the plan your loan is within.
Currently, I am employed as a teacher in China thus required to follow the steps outlined in this article. According to the threshold, I am required to pay 9% above GBP 7, 005 per year equivalent in RMB.
I informed the Student Loans Company that I was no longer working in the UK. Consequently, they mailed me the Overseas Income Assessment form and the evidence information sheet. As I’m employed I was able to send a signed and dated copy of my employment contract.
A problem unfolds, however, as you must show the ANNUAL SALARY BEFORE TAX on the evidence. My contract only shows the monthly remuneration. Therefore, I sent an additional letter from my boss outlining my ANNUAL SALARY BEFORE TAX with her signature. This, after almost one month of waiting, was approved. The process wasn’t as horrible as I had expected but it could be streamlined.
I was sent this letter requesting payment.
The Student Loans Company Requesting Payment
I wish to provide some closing thoughts. First, what of repaying the loan? I prevail to be optimistic that I will be able to repay, in full, my student loan within the 30-year window (after this time the loan is written off) but I have concern for those who will remain on low income throughout their working life. The money, it seems, was loaned without the possibility of ever being repaid. To whom this economic burden will fall in the future continues to be a grave concern.
Second, what of the Overseas Income Assessment? This process can only be fulfilled by copied documents sent in the mail from the UK. Yes, of course, one could send the documents from Colombia, Bulgaria or China but I worry (perhaps unnecessarily) about international mail (especially from China). I know the documents are only copies but if they are lost or delayed, this could result in a fine from the Student Loan Company. Moreover, this process has to be completed year in year out. I urge the Student Loan Company to allow us to send documents to them electronically. This will rationalise the Overseas Income Assessment.
I hope whoever read this, from Britain or otherwise, gained an insight into the ins and outs of the student loan system in Blighty and spared a moment or two to think about the bigger problems of debt-fuelled education.