Student Loan Repayment Threshold 2019/20 Plan 2

When it comes to managing student loans, particularly under Plan 2, it's crucial to understand the repayment threshold for the 2019/20 academic year. This understanding helps borrowers gauge how much they need to earn before repayments begin, and how repayments are calculated once they cross this threshold. This article will provide a detailed overview of the Plan 2 student loan repayment system, including key figures, mechanisms, and practical advice for borrowers.

What is Plan 2?

Plan 2 is one of the repayment plans for student loans in the UK. It primarily applies to students who started their undergraduate courses on or after September 1, 2012. This plan differs from Plan 1 and Postgraduate Loans in several key aspects, particularly regarding income thresholds and repayment rates.

Repayment Threshold for 2019/20

For the 2019/20 academic year, the repayment threshold for Plan 2 loans was set at £25,725. This means that borrowers only start repaying their loans once their income exceeds this amount. If their income is below this threshold, no repayments are required.

Repayment Rate

Once a borrower’s income exceeds the threshold, they are required to repay 9% of their income above £25,725. For example, if a borrower earns £30,000 in a year, they will repay 9% of the amount above £25,725. To calculate this:

1. Income above the threshold: £30,000 - £25,725 = £4,275
2. Repayment amount: 9% of £4,275 = £384.75

Key Features of Plan 2 Repayments

• Income-Contingent Repayments: Repayments are based on income, not on the amount borrowed. This means that if a borrower’s income drops, their repayments will decrease accordingly.
• Interest Rates: Interest on Plan 2 loans is variable and depends on inflation and income levels. It ranges from inflation (Retail Price Index) plus 3% for those earning above £46,000 to inflation alone for those earning below £21,000.
• Loan Forgiveness: Any outstanding balance on Plan 2 loans is forgiven 30 years after the April you were first due to repay or when you turn 65, whichever comes first.

Practical Examples

To illustrate how repayments work under Plan 2, let’s consider a few different income scenarios:

1. Income: £24,000

   • Income is below the threshold.
   • Repayment: £0

2. Income: £26,000

   • Income exceeds the threshold by £274.
   • Repayment: 9% of £274 = £24.66

3. Income: £35,000

   • Income exceeds the threshold by £9,275.
   • Repayment: 9% of £9,275 = £834.75

Comparison with Plan 1

Plan 1, which applies to students who started their courses before September 1, 2012, has a lower threshold and a different repayment rate. For the 2019/20 year, the Plan 1 threshold was £18,935 with a repayment rate of 9%.

Table: Repayment Comparisons

Advice for Borrowers

1. Keep Track of Your Income: Regularly update your income details with your loan servicer to ensure your repayments are accurate.
2. Budget Accordingly: Understand how your repayments will impact your monthly budget, especially if you are nearing the threshold.
3. Plan for Changes: If your income fluctuates, adjust your financial plans to accommodate varying repayment amounts.

Conclusion

The Plan 2 student loan repayment system is designed to be flexible and income-based, allowing borrowers to repay based on what they can afford. By understanding the threshold and repayment rates, borrowers can better manage their finances and plan for their future. If you have any questions or need more personalized advice, consider reaching out to a financial advisor or student loan counselor.