Demystifying Student Loan Repayment for Self-Employed Individuals

September 12, 2023

As a self-employed individual, navigating the process of repaying your student loan requires a bit of do-it-yourself effort compared to those paid through a company payroll. From understanding your student loan plan to managing repayments through Self-Assessment, it’s crucial to grasp the essentials. In this blog post, we’ll guide you through the key aspects of repaying your student loan when you’re self-employed.

Understanding Your Student Loan Plan

When you take out a student loan, you are automatically enrolled in a specific plan that determines the repayment terms and thresholds. Several factors influence your plan, including the date you took out the loan, the UK country you resided in, and whether you pursued an undergraduate or postgraduate degree. For UK residents who studied in the UK, the following student loan plans typically apply:

Plan 1:

  • Applicable to Northern Irish students who borrowed from September 1st 1998 onwards.
  • Also applicable to English and Welsh students who borrowed between September 1st 1998 and August 31st
  • Interest rate on loan is lowest between the RPI from March of the same year and the BOE base rate plus 1%.
  • Repayment begins when the annual salary surpasses £22,015.
  • Plan 1 loans will be written off when you turn 65 for those who started studies in the 2005/06 academic year or earlier. Those who started studies in the 2006/07 academic year or later will have unpaid loans written off after 25 years.

Plan 2:

  • Pertains to English and Welsh students who borrowed after September 1st
  • Will remain applicable to Welsh students who start University and borrow after 1st August 2023. For students in England, they will start on a new plan, “Plan 5”.
  • Interest rates on Plan 2 loans after graduating are variable at RPI plus between 0% to 3%. The rate is dependent on your earnings.
  • Repayment commences once the annual salary exceeds £27,295.
  • Plan 2 loans are written off after 30 years from when you become eligible to repay.

Plan 4:

  • Applicable to Scottish students who borrowed from September 1st 1998 onwards.
  • Before April 2021, Scottish students paid under Plan 1. Any Scottish student who started after 1st September 1998 have been moved to Plan 4.
  • Interest is charged at the same rates as under Plan 1.
  • Repayment begins when the annual salary surpasses £27,660.
  • For those who started studying in the 2006/07 academic year, the student loan will be written off at the earlier of you turning 65 or 30 years after you become eligible to repay. If you started in 2007/08 of after, the loan will be written off after 30 years when you become eligible to pay.

Postgraduate Loans:

  • This plan is for students who obtained loans for PhD or Masters degrees in England and Wales after September 1st
  • Scottish and Northern Irish students with postgraduate loans are included in Plan 1.
  • Repayment initiates when the annual salary reaches £21,000.

Mortgage Style Loans:

  • Students with loans predating September 1st 1998, in the UK have Mortgage Style Loans.
  • Many of these loans have been paid off and are now managed by private companies such as Honour Student Loans, Thesis Servicing, and Erudio Student Loans.

As a self-employed individual, you are responsible for managing and submitting your student loan repayments. Here’s what you need to know:

Register for Self-Assessment:

  • If you haven’t already, register for Self-Assessment with HM Revenue and Customs (HMRC). This will enable you to report your income and calculate your student loan repayments accurately.

Declare Your Income:

  • When completing your Self-Assessment tax return, ensure you accurately declare your income from self-employment, including any profit or loss.

Calculate and Make Repayments:

  • Use the appropriate student loan repayment thresholds based on your loan plan to calculate your repayments accurately.
  • Include the calculated amount in your Self-Assessment tax return and make the necessary payment to HMRC by the deadline.

Stay Organised:

  • Keep meticulous records of your income, expenses, and student loan repayments to ensure accurate reporting and easy reference for future financial management.

Repaying your student loan as a self-employed individual requires a clear understanding of your specific loan plan and diligent management of your finances. By familiarising yourself with the repayment thresholds and fulfilling your obligations through Self-Assessment, you can effectively meet your repayment responsibilities. If you have any uncertainties or complexities regarding your student loan repayment, it’s advisable to seek guidance from a qualified accountant or tax advisor.

Gary Olding

Gary is the National Head of Tax and oversees our Tax Compliance and Medical Tax Teams. When not dealing with clients he is supervising operations, troubleshooting, and optimising workflows.

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