With A-level results released over the summer in England, Wales and Northern Ireland, you may be one of the thousands of students who have recently headed off to university. It is likely that you will have received a loan from the Student Loan Company (SLC) to help finance your studies and associated living costs.
If you are taking out a loan in 2013, the loan repayment provisions will be a low priority until after graduation, but the rules are surprisingly complicated and it can be easy to get caught out.

Types of loan

The first thing to appreciate is that there is more than one type of student loan, and the repayment rules vary accordingly.

Income contingent loans are the most common type of loans but even then the repayment plan varies according to where and when you began your studies. From 1 September 2012, those studying in England and Wales will be on repayment plan 2; students in England and Wales with older loans, and all students in Northern Ireland and Scotland will be on repayment plan 1. The main difference between the two plans is the point at which the requirement to start repaying the loan begins: an individual on plan 1 will start repaying their student loan when they earn over £16,365 before tax in the year, the annual threshold for plan 2 is set slightly higher, at £21,000 before tax.

How does the repayment system work?

The requirement to repay a student loan starts from the April following the date you either graduate or decide to leave your course.

If you are employed, HM Revenue & Customs (HMRC) will notify your employer that you have an outstanding student loan and will confirm the repayment plan that applies. At the end of the tax year, your employer will notify HMRC of the total deductions they have made from your salary, who in turn will notify the SLC. The SLC will apply these repayments to your account.

What do I do if I have overpaid my student loan?

In most cases, loan repayments will be worked out by reference to a monthly earnings period. This means that if your monthly salary fluctuates, the amounts you repay will vary across the year, and you could end up repaying more of your loan than is required. In this situation you can request a repayment, but you may wish to do nothing. After all, the overpayment will mean your student loan is repaid more quickly and you pay less interest!

What do I do if I have nearly paid off my loan?

The SLC recognise the possibility that repayments will be made in excess of the original student loan. Accordingly, they write to all employees with outstanding loans where they believe the loan will be repaid in full within the next two years, offering them the opportunity to instead make monthly direct debits.

This option is only available to employees: if you are not employed, but are making student loan repayments you should monitor the outstanding balance on your student loan, and immediately request a repayment if you end up overpaying.

The SLC will only issue a repayment upon request, there is no facility for repayments to be issued automatically.

In conclusion, the repayment of your student loan is a two-step process: starting with establishing the type of plan you are on, and when your obligation to make repayments begins, followed by carefully monitoring the balance on your loan to ensure you do not overpay in error.