COMPLIANCE
Student loans
Samantha Johnson LLB(Hons) ChMCIPPdip, CIPPpolicy lead discusses how student loans have evolved over time, and also provides an update for 2022/23
T he new tax year brings with it a raft of new thresholds, rates and changes to understand and apply. Most payroll professionals will use payroll software to produce the various calculations, but many also consider it essential to understand how to complete these calculations without the support of a system. Student loans have been available in the UK for several decades, but with the creation of the student loans company (SLC) in 1989, the uptake on student loans began to increase. In 1998, the introduction of tuition fees saw the amount of loans taken soar. As of March 2021, the value of outstanding loans was £161 billion, with average debt reaching £45,000 per borrower in 2020. The government anticipates that only 25% of current full-time students will repay their loans in full. A controversial topic Student loan deductions remain an important part of the payroll team’s pay as you earn (PAYE) obligations. In September 2021, rumours spiralled that the plan two student loan threshold would reduce considerably, which would have significantly increased the number of individuals repaying student loan, and the amount to be repaid. However, the eagerly anticipated announcement came in January 2022 and both plan two and postgraduate loan thresholds
remained static. Some commentators have described this as a stealth increase since high inflation rates are likely to have created a higher pay rise in 2022, ultimately resulting in individuals repaying more into their student loans.
student loan landscape. The postgraduate loan has a lower earnings threshold than plan two and has remained at £21,000 since its introduction. This lower threshold means that employees earning the national living wage working more than
Rumours spiralled that the plan two student loan threshold would reduce considerably, which would have significantly increased the number of individuals repaying student loan, and the amount to be repaid
A complex landscape The student loan landscape has changed significantly over the last six years. Prior to 2016, there was a single student loan deduction, now known as plan one. In April 2016, plan two student loans were introduced. This plan was for students who had taken out a loan for a course starting on or after 1 September 2012 in England or Wales. The interest rates for plan two student loans are currently more than double the rates applied to plan one debt. Yet, the repayment threshold for plan two loans remains significantly higher than plan one. In 2016, students could take out a loan for postgraduate study and the collection of these loans through payroll commenced from April 2019 – the third instalment of the increasingly complex
42.5 hours per week will be required to make payments from April 2022. The postgraduate rate of repayment is, however, lower than its counterparts, with deductions of 6% made from pay above the threshold level. The final instalment to student loans was introduced in April 2021. The plan four student loan created a new threshold, which will move to £25,375 in April 2022. The deduction rate remains at 9% in alignment with plans one and two. The new plan applies to Scottish students, who received their student loan from the student award agency for Scotland. This means new and existing borrowers have a new threshold applied where they fall within the plan four criteria. Many employees have been moved from plan one to plan four in the
| Professional in Payroll, Pensions and Reward | April 2022 | Issue 79 14
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