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With interest hikes causing panic, here’s everything you need to know about student loans

The plan that you’re on will affect your interest rate, rate of repayment and when you actually start(ed) to repay your loan. Tuition fees increased significantly in the academic year starting 2012, causing political uproar at the time, and students starting university after that time usually have much higher student debts.

The amount that you owe, and the amount that you actually have to repay, are often vastly different

This can be a tricky one to get your head around, but it’s the most important one to remember amidst the panic about rocketing interest rates. For most people, with current rules in place, their student loans will never be repaid in full. Loans are paid back at a set rate (9% for those on plans 1,2 and 4) per year once you hit the earning threshold for repayment (£20,195 for those on Plan 1 and £27,295 for those on Plan 2), and the debt is written off after 30 years – though there are plans to change this for students starting university from September 2023.

Because of the way things work, the more you earn, the more of your student loan you will repay, and those on lower incomes will pay little or nothing towards their loans over their working lives. Like income tax, your student loan repayments are only made on the income that you earn above and beyond the repayment threshold – so if you earn £28,000 on Plan 2, for example, your repayments will be 9% of £705. If you earn £38,000 on Plan 2, your repayments will be 9% of £10,705, and so on. For more examples, see moneysavingexpert.com.

Things will change from September, if government plans go ahead

The government has announced plans for sweeping reforms to student loans, stretching the repayment period by ten years from 30 to 40 and reducing the repayment threshold to £25,000 for those starting university from September 2023. This would make attending university more expensive still, and has been widely criticised.

There is, of course, much to be discussed about student loans, the planned reforms and the impact of climbing interest rates. For many, the idea of owing so much will cause anxiety and unease. However, it’s important not to panic about the immediate, real-life consequences of these hikes, because the interest change does not currently impact the amount you repay each year, nor does the debt impact your credit rating. With all of the other financial concerns you may be dealing with at the moment, it’s important to keep your student loan in context.