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Student Loan Repayment (Beyond the Headlines)

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  • Student Loan Repayment (Beyond the Headlines)

  • Session Contents: - This presentation will cover many of the fundamental facts

    about student loan repayments and address areas of common concern including;

    • Student Loan Repayment Overview

    • Terms, Conditions and Repaying from Overseas

    • Understanding the Interest

    • Raising the Repayment Threshold

    • Due Dates and Multiple Loans

    • Monitoring a Loan Balance

    Insert slide header Insert slide header Student Loan Repayment – Beyond the Headlines

  • Students won’t make repayments until their future income is over £21,000 a year* (gross) or

    the weekly/monthly equivalent:

    • If they study a full-time course, students will be due to start repaying their loan in the April

    after graduating from/leaving higher education

    • They’ll repay 9%** of any income earned over £21,000 and if employed, deductions will

    be made from their pay through the HMRC tax system

    • If their income falls to £21,000 or below their repayments will stop

    • Any outstanding loan balance will be written off 30 years after entering repayment

    * Annual repayment threshold currently £17,775 for ICR Plan 1 students

    ** 6% of income earned over £21,000 for Plan 3 (PGL) students i

    Insert slide header Student Loan Repayment – The Basics

  • For England domiciled students (and EU students who studied in England), the following terms

    apply to the income contingent (ICR) repayment of loans;

    • Plan 1 – Loans taken for HE courses that started before 1st Sept 2012

    • Plan 2 – Loans taken out for HE and FE courses that started on or after 1st Sept 2012

    • Plan 3 – Loans taken out for Master’s degree courses that started on or after 1st Aug 2016,

    and Doctoral courses starting on or after 1st Aug 2018

    For Welsh domiciled students (and EU students who studied in Wales), loan repayments will

    currently only be made under Plan 1 or Plan 2 terms*

    *Wales are laying new legislation to introduce a new repayment ‘Plan’ type

    to mirror Plan 3 (PGL/Doctoral) arrangements in England i

    Insert slide header Student Loan Repayment – The Basics

  • Average Student Loan balance on entering repayment by Government Administration:

    • All figures and information taken from, and available in, the Official Statistics section

    on www.slc.co.uk

    Average Student Loan Balance By Administration

    England Northern Ireland Scotland Wales

    2016 2017 2016 2017 2016 2017 2016 2017

    £24,480 £32,220 £19,620 £20,990 £10,360 £11,740 £15,890 £19,280

    Insert slide header Average UK Student Loan Balance

    http://www.slc.co.uk/official-statistics/student-loans-debt-and-repayment.aspx

  • Average annual HMRC Student Loan repayment by Government Administration:

    • All figures and information taken from, and available in, the Official Statistics section

    on www.slc.co.uk

    Average Annual HMRC Student Loan Repayment By Administration

    England Northern Ireland Scotland Wales

    2014-15 2016-17 2014-15 2015-16 2014-15 2016-17 2014-15 2016-17

    £880 £900 £780 £800 £680 £660 £780 £795

    Insert slide header Average Annual HMRC Repayment

    http://www.slc.co.uk/official-statistics/student-loans-debt-and-repayment.aspx

  • Insert slide header Headline – SLC Criticised Over ‘Penalty Interest’

    https://www.theguardian.com/money/2017/jul/29/student-loans-company-penalty-interest-rate

  • Harriet Gable, a 23-year-old who graduated from the University of Southampton in summer

    2015, received a letter from SLC in May last year, which said the company understood she

    had become unemployed, despite no change in her employment status:

    • She had been working for Net-a-Porter for the previous eight months, earning £17,000 –

    i.e. £4,000 less than what is required to commence repayment

    • Gable says she failed to respond to the letter, which was sent to her parents’ address,

    because she felt it was unnecessary given that she had a job

    • Figures seen by the Guardian showed the SLC put more than 33,000 people in England

    and Wales on a “non-compliance interest rate” of 3% for failing to respond to requests

    for information or “losing touch” with the company

    Insert slide header Headline – SLC Criticised Over ‘Penalty Interest’

  • Insert slide header Insert slide header Terms and Conditions Guide – A Must Read!

  • You must make sure that you provide complete and correct information when you take out the

    loan and you must tell SLC about any changes to these details:

    • During the application process

    • While you’re at university or college

    • Until you’ve repaid your loan in full

    • If you don’t give SLC accurate and up-to-date information, you may have to pay a penalty

    charge or repay the loan and any interest and penalties in one lump sum

    • If you don’t keep in touch with us, or fail to advise us of changes to any of your personal

    details, an interest rate of RPI plus 3% will be applied to your loan whatever your income

    Insert slide header Terms and Conditions Guide – What Does it Say?

  • Non-Compliance Rate (NCR) interest applies to all Plan 2 customers who fail to respond to

    a request for information from SLC:

    • Customers will be charged an interest rate of RPI + 3% and will continue to be charged

    this rate until all information and evidence required by SLC is provided

    • Once the information is received, the appropriate interest will be applied but we will not

    retrospectively remove NCR

    • The NCR will still be applied for the period where we were awaiting correct information

    • The NCR interest will be applied after a 42 day count, beginning when the request for

    information has been sent

    Insert slide header Terms and Conditions – Applying Interest Charge

  • NCR interest will be applied after a 42 day count, beginning when the request for information

    (COCD, OVFA, OVFI etc..) has been issued to the customer:

    • After 42 days NCR interest will be applied at the end of the first whole applicable month

    For Example;

    • A student is sent an OVFA on 5th April, has not responded to us by 17th May which

    is 42 days later

    • The NCR interest will be applied for the first whole applicable month which would

    be June

    COCD = Confirmation of Customer Details Form, OVFA = Overseas Income

    Assessment Form, OVFI = Overseas Incomplete Information Form i

    Insert slide header Terms and Conditions – Applying Interest Charge

  • Insert slide header Insert slide header Headline – Mounting Anger at ‘Nightmare’ SLC

    https://www.theguardian.com/money/2017/jul/29/graduates-anger-nightmare-student-loans-company-complaints

  • When Gary Ashworth moved to Botswana in 2013 to start a design business, he immediately

    told the Student Loans Company that he would be out of the UK:

    • Despite updating the company with his earnings, as requested, last year he discovered

    that £930 was being demanded by a firm of debt collectors

    • The reason for this harsh penalty? He apparently failed to put his date of birth on one of

    the numerous forms sent by the loan company

    • SLC told Money that Ashworth has not been hit with £930 penalty charges

    • Instead, this sum was demanded because he failed to fill in the overseas form for the

    year starting Feb 2015, and it was assumed he was earning above the payment threshold

    Insert slide header Headline – Mounting Anger at ‘Nightmare’ SLC

  • If they will be heading overseas for more than three months, students will need to complete an

    Overseas Income Assessment Form (OVFA) so SLC can calculate any loan repayments due:

    • Students should provide accurate details of their circumstances, any prospective income

    and evidence of their existing income or means of support

    • SLC then send a repayment schedule showing how much they need to pay each month*

    • The repayment amount is usually fixed for a 12 month period

    • However students can apply for a reassessment of their repayments at any time if their

    income level changes or they move countries

    *The easiest way to repay from overseas is through Direct Debit, but other

    options include IBAN, continual card payment or making lump sum payment

    i

    Insert slide header SLC Overseas Income Assessment Process

    http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678804&_dad=portal&_schema=PORTALhttp://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678804&_dad=portal&_schema=PORTAL

  • If they are living overseas, a student’s monthly repayment schedule is worked out using the

    same principles as for those who live in the UK:

    • They will repay the relevant percentage of their earnings over the repayment threshold

    for the country they are living in

    • To take account of differences in living costs, the repayment threshold in another country

    will not necessarily be the same as in the UK

    • The repayment thresholds are set at an affordable level which reflects the conditions and

    living costs in the relevant country

    • Countries are split into repayment ‘bands’ (A-G) based on this data

    Insert slide header SLC Overseas Income Assessment Process

  • Overseas repayment band thresholds for Plan 2 and 3 student loans:

    • Default monthly repayments are due when students are not in the UK Tax System and do

    not provide SLC evidence of residence and income to complete an income assessment

    Band Repayment Threshold Default Monthly Repayment

    A £4,200 £40.20

    B £8,400 £80.40

    C £12,600 £120.60

    D £16,800 £160.80

    E £21,000 £201.00

    F £25,200 £241.20

    G £29,400 £281.40

    Insert slide header Overseas Repayment Thresholds

  • • Interest is applied on the same principle as in the UK, RPI only if earning under the lower

    threshold, to RPI +3% if earning over the upper threshold

    Country of

    Residence

    Lower Income

    Threshold

    Upper Income

    Threshold

    Default Monthly

    Repayment

    Australia/Norway £25,200 £49,200 £241.20

    China/Portugal £12,600 £24,600 £120.60

    Germany/Japan £16,800 £32,800 £160.80

    Poland/Romania £8,400 £16,400 £80.40

    USA/Canada £21,000 £41,000 £201.00

    Insert slide header Overseas Repayment Thresholds

  • Insert slide header Overseas Repayment – Applying Default Charges

    *This will allow for accurate assessment of the repayment amount due and

    remove any unnecessary default payments, arrears or interest charges i

    Customers will be issued an OVFA 8 weeks prior to their current schedule ending (reminder is

    sent after 4 weeks) and if not returned within 14 days then a 'Default Payment Schedule Letter‘

    (OVRS) is issued advising the customer of the default amount they will be charged:

    • If after the 8 weeks the OVFA is not returned or processed, default charges will be applied

    to the account and this would start the month after their current schedule ends

    • The amount applied is the monthly default repayment for the country they are residing in

    when the default schedule was created

    • Customers on a default repayment schedule changing their country of residence should

    submit an updated OVFA with evidence showing their income/means of support asap*

  • Insert slide header Headline – ‘Surge’ in Outdated Interest Measure

    https://www.theguardian.com/money/2017/apr/11/student-loan-interest-rate-rise-uk-inflation-brexit

  • Graduates will pay as much as £18,000 extra on their student loans because an outdated

    measure of inflation is used to set their interest rates:

    • The retail prices index used by the company that manages the loans is almost always

    higher than the more modern and accurate consumer prices index

    • The finding that the Student Loans Company makes an extra £368 million a year by

    using RPI will pile pressure on ministers to revert to CPI to fix interest rates for the debts

    • Tory MP Robert Halfon, chairman of the education select committee, said: ‘ The high rate

    of interest on student loans is something that needs to be looked at very seriously

    • ‘In America, rates are much lower, switching to CPI would certainly be worth looking at’

    Insert slide header Headline – ‘Surge’ in Outdated Interest Measure

  • Insert slide header Student Loan Interest – The Basics

    The interest rate for Pre 2012 ICR Plan1 loans will be set at 1.25% until

    further notice i

    Interest on an ICR Plan 2 student loan will start being added as soon as the first payments are

    made and the rate applied will vary:

    • While in study until entering repayment, interest will be applied at RPI +3%

    • RPI is Retail Prices Index and the rate used for student loan interest is set once a year

    using the RPI figure from March which is then applied in September

    • On ‘entering repayment’, interest rates will be linked to what the student earns

    • This will be from RPI only if earning under £21,000 to RPI +3% if earning over £41,000

    • The rate for ICR Plan 3 loans (PGL/Doctoral) is set at RPI +3% for the ‘life’ of the loan

  • Income Contingent Student Loans for post 2012 students:

    0.9%

    3.9%

    1.6%

    4.6%

    6.1%

    3.1%

    RPI Max Interest RPI Max Interest RPI Max Interest

    2015/16 2016/17 2017/18

    The maximum interest rate for Plan 2 loans has been higher than the 2017

    6.1% rate on two occasions already: 6.6% in 2012/13 and 6.3% in 2013/14 i

    Insert slide header Student Loan Interest – The Basics

  • Raising the Repayment Threshold

  • £30 £4,000

    Income each year before tax 9% Deducted From Monthly Repayment (Approx)

    £21,000 £0 £0

    £30,000 £9,000 £67

    £40,000 £19,000 £142

    £50,000 £29,000 £217

    £60,000 £39,000 £292

    Income

    £25,000

    The government have announced that the income threshold for Plan 2

    student loan repayments is to be increased to £25,000 from April 2018 i

    Insert slide header Raising the Threshold – The Current Figures

  • £0 £0 Income

    £25,000

    The government have announced that the income threshold for Plan 2

    student loan repayments is to be increased to £25,000 from April 2018 i

    Income each year before tax 9% Deducted From Monthly Repayment (Approx)

    £21,000 £0 £0

    £30,000 £5,000 £37

    £40,000 £15,000 £112

    £50,000 £25,000 £187

    £60,000 £35,000 £262

    Insert slide header Raising the Threshold – The ‘New’ Figures

  • Annual

    Gross Income

    Monthly Repayment

    (Approx @ £21,000)

    Monthly Repayment

    (Approx @ £25,000)

    £25,000 £30 £0

    £30,000 £67 £37

    £35,000 £105 £75

    £40,000 £142 £112

    £45,000 £180 £150

    £50,000 £217 £187

    £60,000 £292 £262

    Monthly repayment comparison of £21,000 and £25,000 thresholds:

    Insert slide header Student Loan Repayment – Raising the Threshold

  • In a ministerial statement made on 9th October, Jo Johnson communicated some of the main

    headline policy changes regarding the rise in the earning threshold for student loan repayments

    from £21,000 to £25,000:

    • The earnings threshold will increase from 6th April 2018 for the 2018-19 financial year

    • Thereafter it will be adjusted annually in line with average earnings

    • The new threshold will apply to those who have already taken out and will take out loans for

    tuition and living costs for full-time and part-time undergraduate courses in the post-2012

    system

    • And those who took out/will take an Advanced Learner Loan for further education courses

    The repayment thresholds applicable to Plan 1 pre-2012 student loans, the

    Mortgage Style Loans and Master’s Loans are not affected by this change i

    Insert slide header Student Loan Repayment – Raising the Threshold

    http://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2017-10-09/HCWS145/

  • In a ministerial statement made on 9th October, Jo Johnson communicated some of the main

    headline policy changes regarding the rise in the earning threshold for student loan repayments

    from £21,000 to £25,000:

    • The lower threshold for variable interest rates for post-2012 student loans will also rise to

    £25,000 on 6th April 2018

    • The upper threshold will rise to £45,000 from £41,000 on the same date

    • As with the repayment threshold, the variable interest rate thresholds will also be adjusted

    annually in line with average earnings

    • ‘In 2018-19 around 600,000 borrowers will benefit from these changes’

    ‘Most of those 600,000 borrowers will make lower contributions and have a

    lower rate of interest applied’ i

    Insert slide header Student Loan Repayment – Raising the Threshold

    http://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2017-10-09/HCWS145/

  • Income linked interest rates with £25,000 threshold increase:

    Interest rate is:

    Set at RPI Only

    In study, until

    entering repayment £

    Income:

    Under £25,000 £

    Income:

    From £25,000 to £45,000 £

    Income:

    Over £45,000 £ Interest Rate:

    RPI +3% %

    Interest Rate:

    RPI +3% %

    Interest Rate:

    RPI Only %

    Interest Rate:

    RPI + Up to 3% %

    Insert slide header Student Loan Repayment – Raising the Threshold

  • Due Dates and Multiple Loans

  • The Statutory Repayment Due Date (SRDD) for student loan balances will be the earlier of;

    • 6th April following the course end date

    • 6th April following the fourth anniversary of the course start date, where the course lasts

    longer than 4 years (e.g. part-time undergraduate)

    • 6th April following the withdrawal date, where the student withdraws from the course

    With the availability of Advanced Learner Loans, PGL/Doctoral Loans and repeat funding for

    certain UG courses, students may have multiple repayment due dates to be aware of

    • If a student has loans that are in repayment status and also takes loans for an additional

    course, any repayments due are allocated to the loans that are in repayment status only*

    Insert slide header Student Loan Repayment – The SRDD

    *Until the SRDD for the latest course is reached when the total balance will

    be reviewed and repayments allocated as applicable i

  • Where a student has a loan balance across multiple products subject to only one set of terms,

    (Plan 2 etc) repayments will be made against a single, combined balance:

    For Example;

    • A student received SFE support for a full undergraduate course before receiving additional

    Plan 2 funding for a healthcare (nursing/midwifery/AHP) undergraduate degree course

    • One repayment will be made against their overall Plan 2 debit balance

    • The repayment amount is split proportionally according to the outstanding balance of each

    Maintenance or Tuition Fee Loan

    • This is contingent on the student having reached the SRDD for the latter course

    Insert slide header Student Loan Repayment – Multiple Loans

  • The repayment amount due for Plan 3 (PGL/Doctoral) loans is 6% of income earned above

    the applicable threshold:

    • This deduction is calculated/deducted separately from any deductions due for Plan 1 or

    Plan 2 loan balances

    • Repayments to Plan 3 loans are therefore made concurrently with repayments to Plan 1

    or Plan 2 loans

    • If a student has both a PGL Master’s balance and a PGL Doctoral balance in repayment

    status, the repayment amount due is combined

    • A single deduction of 6% will be taken and applied proportionally to the total PGL balance

    Insert slide header Student Loan Repayment – Multiple Loans

  • HMRC advise employers of the correct repayment thresholds for each student according to

    whether they have Plan 1, 2 or 3 loans in repayment status or a combination thereof:

    • Repayment percentages deducted are as follows;

    Loans in Repayment Status Thresholds Applied

    Plan 1 Plan 2 Plan 3

    Plan 1 Only 9%

    Plan 2 Only 9%

    Plan 3 Only 6%

    Plan 1 and 2 9%

    Plan 1 and 3 9% 6%

    Plan 2 and 3 9% 6%

    Plan 1, 2 and 3 9% 6%

    Insert slide header Student Loan Repayment – Multiple Loans

  • Gross Annual

    Income Repayment

    (Post 2012 UG Loan)

    Repayment (PGL Master’s/Doctoral)

    £21,000 £0 £0

    £25,000 £30 £20

    £30,000 £67 £45

    £35,000 £105 £70

    £40,000 £142 £95

    £50,000 £217 £145

    £60,000 £292 £195

    Monthly repayment model for students holding ICR Plan 2 and PGL Plan 3 loans:

    Insert slide header Student Loan Repayment – Multiple Loans

  • Gross Annual

    Income Repayment

    (Post 2012 UG Loan)

    Repayment (PGL Master’s/Doctoral)

    £21,000 £0 £0

    £25,000 £0 £20

    £30,000 £37 £45

    £35,000 £75 £70

    £40,000 £112 £95

    £50,000 £187 £145

    £60,000 £262 £195

    Monthly repayment with threshold increase for ICR Plan 2 loans only:

    Insert slide header Multiple Loans – Estimated Repayment Model

  • Insert slide header Headline – Mass Overpayment and ‘Cash Grabs’

    https://www.theguardian.com/money/2017/aug/05/student-loan-company-finance-complaints-debt?CMP=Share_AndroidApp_Gmailhttp://www.telegraph.co.uk/money/student-money/hmrc-blames-student-loans-company-mass-overpayments/

  • A Freedom of Information request made to the SLC showed that in 2015-16,

    86,000 student loan customers paid off £51m more than they owed i

    Graduates who have paid off their student loans say they are continuing to have as much as

    £300 a month taken from their pay packets by the Student Loans Company:

    • These are among the latest complaints from graduates who allege shocking treatment at

    the hands of the government-backed SLC

    • Topping the complaints is the inability to obtain an up-to-date statement of what is owed

    • The problem arises because even though HMRC collects the information from employers

    monthly on how much graduates have paid, it is handed over to the SLC only annually

    • This means that when a loan is paid off in full part way through the year it goes unnoticed,

    and the graduate’s salary deductions continue

    Insert slide header Headline – Mass Overpayment and ‘Cash Grabs’

  • 1. When earning over the set threshold, employers will automatically deduct student loan

    repayment from salary along with Tax and National Insurance

    2. The employer tells HMRC how much student loan has been repaid

    3. At the end of the tax year, HMRC informs SLC how much has been repaid

    4. SLC apply the repayments made to overall balance

    • The total amount repaid is paid to the loan balance as 12 monthly instalments and

    the interest is calculated and added for each month

    • A statement is issued to students detailing repayment for the previous tax year, how

    much interest has been added and the new total outstanding balance

    Insert slide header Working Out a Student’s Loan Balance

  • HMRC currently only notify SLC once a year how much a student has paid towards their loan,

    meaning outstanding balances can only be updated annually, so it is possible students could

    repay more than is outstanding on their loan:

    How can this be prevented?

    • SLC are currently working with HMRC to introduce a ‘per pay period’ data share so a

    balance can be updated in line with when a customer is paid

    • As they approach the end of their repayment term (last 2 years), SLC give students the

    option to change the way they make their final repayments

    • Rather than deductions from their salary, students will be able to make repayments by

    monthly Direct Debit (which can now be set up any day between 1st and 28th of a month)

    Insert slide header Working to Prevent Students ‘Over-Repaying’

  • Regardless of planned improvements for the SLC/HMRC data sharing and the Direct Debit

    payment facility, it is still important students take the lead to avoid any potential overpayment:

    Advice that can be given could include;

    • Be aware of your loan balance – Either using SLC issued statements or through the SLC

    repayment website - www.studentloanrepayment.co.uk

    • Use your P60 to review annual repayments and monitor on-going payments, particularly

    if getting close to the two-year DD switch option

    • P60s and wage slips can be used to track estimated deductions to loan balances and can

    be submitted to SLC as payment evidence, so keep them safe!

    Insert slide header Messages and Actions for Students

    http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,3866794&_dad=portal&_schema=PORTAL

  • Do students track their loan repayments as closely as they should or as closely as they/we

    would monitor other long-term financial commitments?

    • Direct Debits/Standing Orders set up for bank or car loans, credit card payments etc..

    • Payments up for annual renewal (Insurance, TV/Broadband, Mobile Contracts)

    Yes, it is essential that SLC provide clear and easily accessible information and facts about

    repayment to students at every stage of the ‘life’ of their loans

    It is also important we work with our HE, FE and Careers Advice partner network to ensure

    they have access to the latest recourses, training and support with repayment issues

    However, it is also vital that students.....

    Insert slide header Messages and Actions for Students

  • Read and understand the Terms and Conditions!

    Insert slide header Messages and Actions for Students

  • Funding Information Partners Team

    [email protected]

    www.practitioners.slc.co.uk