How does Income Contingent Repayment work?

What does Income Contingent Repayment mean?

Income Contingent Repayment means that the amount you repay will be based on your income. If you earn less than the repayment threshold – a minimum level of income set by the Government which is discussed below – you will not be required to repay anything. If you earn above the threshold, you will be required to repay 9% of the amount you earn in excess of the threshold.

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Different types of repayer

As a Loan Repayer, you will fall into one of three categories:

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How interest on your loan is calculated

The interest rate for Income Contingent Loans applies from 1 September to 31 August each year. All student loans accrue interest which is linked to the rate of inflation in line with the Retail Prices Index. This means that in real terms, the amount you pay back will have broadly the same value as the amount you have borrowed and no profit is made on the loan itself. Interest accrues on your loan until it has been repaid in full. The current interest rate is 1.5%.

If you have been identified as a PAYE or Self-Assessment repayer, interest accrual will be suspended from the start of the tax year until the end-of-year repayment details are received from HM Revenue and Customs (HMRC) (formerly the Inland Revenue).

Interest for the previous year will then be calculated and applied to your account retrospectively upon receipt of your repayment details.

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The repayment threshold

The repayment threshold for Income Contingent loans is currently set at £15,000 a year before deductions. If your income exceeds £15,000 a year, or the equivalent sums of £1250 per month or £288 per week, you are required to make repayments.

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If you are disabled

Any disability-related benefits you receive will not be counted towards the £15,000 threshold, even if they are taxable. If you receive a disability-related benefit and are permanently unfit for work, your loan will be cancelled.

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If you have more than one type of loan

Most people will only have one type of loan – either an Income Contingent (IC) or old style fixed term loan. However, if you have borrowed under both the old style Student Loans Scheme and the current Student Support Scheme (meaning you also have an IC Loan) for a PGCE Course, you may have a choice as to which loan you repay first. If you exceed both repayment thresholds, you can obtain further advice by calling the Student Loans Company on 0870 240 6298.

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When you start repaying the loan

You will begin repayment of your Student Loan on the 6th April after you graduate or stop attending your course. For example, if you graduated in June 2005, your repayments will be due from April 2006.

If you withdraw from your course prior to your original intended graduation date, you will be eligible to start repayment of your Student Loan in the April following your last date of attendance. If the April following your last date of attendance has already passed, your repayments will continue as soon as can be arranged, and you will be liable for repayments only from then.

We will contact you closer to your repayment date with additional information on how to repay your loan.

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How loan repayments are worked out

Your loan will become due for repayment in the April following the date that you complete or leave your course. At that time the Student Loans Company will advise HMRC that your loan has entered repayment. They in turn will instruct your employer to deduct repayments from your gross income at the rate of 9% of any income earned in excess of £15,000 a year, £1250 per month or £288 per week. Your employer then has up to one year after the end of the tax year to confirm these deductions to HMRC.

It is important to note that no information regarding repayments, balances and collection can be passed between SLC and HMRC other than the designated repayment transfers at the end of the tax year. There may therefore be times when you wish to contact us regarding your balance and we cannot provide you with this information. Regrettably this is not something over which the Student Loans Company has any control.

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How much you will repay

The size of your income determines how much you repay. The first £15,000 of your annual income (or monthly / weekly equivalent) is disregarded and your repayment is worked out as 9% of the remaining balance.

Examples

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If you think you have repaid in full

Employed

Based upon the information we received from HMRC, we will contact you if we believe that you will shortly complete repayment of your loan. If this is correct, we will contact the HMRC and they in turn will advise your employer to stop making deductions from your salary. Employers are requested to act upon this notice before the next pay date. However it is possible that deductions may continue for one or two months after your loan account is paid in full. If this happens, you should write to the Student Loans Company enclosing your wage slips to show these extra deductions, and any overpayments will be refunded to you.

Self-Employed

Under Self Assessment you are responsible for making loan repayments to HMRC. If you are close to fully repaying your loan, you should contact us or HMRC to confirm a final settlement.

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Refunds

If your income varies or falls during the tax year

It is possible that you will have a Student Loan deduction in a pay period where your earnings exceed the weekly or monthly threshold, but over the whole year your income does not exceed £15,000. This might happen if you receive a bonus payment or work overtime. In this situation you will be able to apply for a refund of all repayments made in the applicable year but the Student Loans Company will not issue a refund unless you apply for one. You may also decide not to apply for a refund which will allow you to repay your loan more quickly.

If you have repaid your loan but deductions continued

You should write to the Student Loans Company enclosing your wage slips to show these extra deductions, and any overpayments will be refunded to you. We will not accept a year to date balance on a payslip for arranging a refund.

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