Students who have cleared their bachelor degree studies may be wondering how they will repay their loans and more specifically the student loan interest rate that is charged to their accounts. From 1998, the government introduced the income contingent scheme in which one was supposed to pay interest based on the amount of earnings they got in a given year.
Currently, there are three way which you can use to repay student loans in the UK. The first is repaying the students loans through paying. This means that the installments are deducted monthly from your paycheck to pay for the loan. The second is through self-assessment where you are required to work out the loan deductions directly from your earnings and pay the deductions at the end of each year. The third way is to remit the deductions from diaspora if you are employed outside the UK.
However, if you are self-employed, then you will be required to work out the annual deductions from your annual earnings which is set at approximately £15,000. If you have problems then you should ideally consult with the person managing your debt in the bank. This procedure is more or less similar to the procedure that you use to calculate other deductions such as tax and insurance premiums.
If you meet the minimum annual income threshold, then you will have to pay a student loan interest rate of 9% above the threshold income per annum. This simply means that you will be charged interest on any amount that you earn above this threshold and not on the gross income that you receive per year. So, you will find that your interest may vary with that of another person who received the same amount of loan that you were awarded.
If you have not reached the repayment threshold, then the repayment can be postponed to such a time that you can be able to fulfill your financial obligations to the lender. Therefore, this means that you can only start repaying the student loan when your gross earning amounts to £1,250 a week or approximately £290 a week, whether in formal employment or in a private enterprise. This requirement also applies to all those who are paid wages twice a month.
From the late 2010, the student loan interest rate on contingent income was revised to 1.5 % all over the UK and there are still speculations that the interest rate may change at the 3rd quarter of 2011 because of expected adjustments by banks and lending institutions. Thus, individuals who are repaying the loans may be required to pay up to a maximum of 4.4% interest on loans drawn from contingent incomes.
Normally, the interest that is charged on students loans is much lower because the student loan interest rate is normally subsidized by the government. So, you don’t have to worry about the interest that you will pay. You will only be required to pay once the grace period is over and when your income exceeds the threshold set for all loanees coming out of college.