Student Loans are part of the government’s financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying, and it is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is responsible for collecting the loans of borrowers outside the UK tax system.
The annual threshold amounts since 6 April 2021 are £19,895 for Plan 1 and £27,295 for Plan 2. The terms of loan repayment for courses of study started before 01 September 2012 are referred to as ‘Plan 1’, and those started after 01 September 2012, are referred to as ‘Plan 2’. Repayments are deducted at a rate of 9% of income over the threshold.
A new plan for Scottish student loan (SSL) borrowers, known as ‘Plan 4’ was introduced on 6 April 2021. Under this plan, there is an earnings limit of £25,000 above which a 9% threshold applies. The SSL impacts employers across the UK, not only those located in Scotland. It applies to employers who have employees paying back their loans from the Student Award Agency for Scotland.
The loans are also subject to varying levels of interest. The interest rates for Plan 2 repayments are based on the Retail Prices Index plus a variable rate dependent on income. The interest rates for Plan 1 repayments are significantly lower than for Plan 2 repayments.
HMRC’s guidance entitled ‘Student loan and postgraduate loan repayment guidance for employers’ has been updated. New guidance on what deductions to make for employees who have more than one plan has been added.