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I attended university as an adult student to become a teacher, from 2012 to 2015. I took out a student loan to pay fees and received a full maintenance loan.
I have worked as an elementary school teacher since I graduated and have paid the corresponding payments from my salary. However, the interest they charge me causes the debt to increase each year instead of decreasing.
I am currently 52 years old. I believe I must make student loan payments for 30 years if I earn over a certain amount. Does this mean that when I retire, if my total pension exceeds that limit, I will have to continue making payments?
Fortunately, my salary payments do not affect my ability to live well today, and I am grateful for that in current times. However, making payments during retirement, when my income will be much lower, is a different matter, and I may need to address that in the future. AL, via email
Who can, pays: A reader wants to know if student loan payments extend beyond retirement
This is Money’s Harvey Dorset responds: Choosing to leave the world of work to go to university as a mature student is never a decision taken lightly, but the prospect of better job prospects, higher earning potential and a more fulfilling career can be tempting.
Of course, by doing so, you’re joining the dozens of graduates who have to take on student debt after finishing their studies. Since you’ve taken out the maximum maintenance loans, the amount you owe is not an insignificant figure.
Most students who attended college in their teens or twenties with Plan 2 student loans would see their loans canceled in their fifties, after the 30-year period, if they have not finished paying them off.
Unlike younger students, you’ll reach retirement age with about 15 years of payments left on your loan, and unfortunately, retirement doesn’t mean you can stop paying if you go over the threshold.
However, the amount you will have to pay will depend on your pension income. It is worth noting that while it may be above the payment threshold, you will have to pay much less than you would if you were earning a salary.
This is Money spoke to two experts to find out what you should expect when you retire.
Mike Ambery says becoming a mature student could boost your earning potential
Mike Ambery, director of retirement savings at Standard Life, part of Phoenix Group, answers: While student loans are paid off after 30 or 40 years, depending on the type of plan, there is currently no maximum age for repaying them, so mature students like you could face payments in retirement.
With the decline of the ‘job for life’ and more people than ever looking to retrain or re-study later in their careers, this is something that could affect a large number of people.
As you mentioned in your question, student loan payments will only kick in if your income is above the payment threshold, which depends on the plan you have – you can find more information at UK Government.
It also works on a sliding scale, as you pay a percentage of your income above the threshold. So if your pension income is less than your working income, but above the threshold, you will pay less than you would have paid before you retired.
For people considering returning to study as mature students, you should definitely consider the potential impact of applying for student finance, but weigh it up against the fact that you could earn more in the future as a result of your studies, which could improve your finances in both the short and long term. You could also feel happier and more fulfilled, and that is priceless.
James Jones-Tinsley, self-invested pensions technical specialist at Barnett Waddingham, answers: Since you started your college career between September 1, 2012 and July 31, 2023, you are receiving a plan 2 student loan.
In theory, you would only begin repaying your student loan when your income exceeds the “threshold amount” relevant to your repayment plan.
James Jones-Tinsley says payments would stop if his income falls below the minimum
From April 2024, those with a Plan 2 student loan will only start repaying their loan when their income exceeds the threshold amount of £524 per week, £2,274 per month or £27,295 per year.
The threshold amount changes on April 6 of each year.
For Plan 2, employed people like you pay back 9 percent of the income you earn above the threshold amount.
However, the interest you are charged on your loan depends on the plan you have.
Currently, he is charged 7.9 percent interest per year because he is on plan 2, which is significantly higher than the current bank base rate, and this explains why his outstanding debt is not decreasing year after year.
Considering your question, the definition of “income” is the amount you earn before taxes (including bonuses and overtime) and other deductions.
However, your payments would automatically stop if your income fell below the current threshold amount or if you stopped working.
In this case, “stopping working” does not automatically translate into “retiring” and starting to receive a pension.
Alternatively, when your student loan is canceled or forgiven depends on the repayment plan you have.
As you rightly state, loans under Plan 2 are cancelled 30 years after the month of April in which you were due to pay for the first time.
So, if you started paying back your student loan in April 2016, once you become an elementary school teacher, it will be cancelled in 2046, regardless of the amount of the loan still outstanding.
If you are now 52, then you would be 74 when your debt would be written off, by which time you would have retired and would be receiving both your Teachers’ Pension Scheme pension and your state pension.
However, if you retire before 2046, you won’t have to make any additional student loan payments from then on?
A Freedom of Information request was made to Student Loans Company Limited in October 2017 and a response was obtained. The representative responded as follows: ‘Student loan deductions are taken from any income subject to Class 1 (secondary) National Insurance Contributions (NICs) (this is commonly known as NICable income) under regulations 41 and 45(1) of the Education (Student Support) (Refund) Regulations 2009 (as amended).
‘Student loan and occupational pension deductions (which would include the Teachers’ Pension Scheme): If you receive an occupational pension that is not subject to Class 1 National Insurance Contribution (NIC) deductions, your pension payer should not make any student loan deductions.
‘Student loan deductions should only be made on income that is subject to Class 1 National Insurance contributions at the time of payment.
‘If you are unsure what type of pension you are being paid, you should ask your pension payer for information.
‘However, the pension payer will still have to deduct income tax in the usual way.
‘The only occasion where an occupational pension could attract student loan amounts would be if you are required to complete an annual Self Assessment (SA) Tax Return for HMRC and the total of all your unearned income exceeds £2,000.
‘Occupational pensions (managed through the borrower’s employer), private or state pensions do not attract deductions for student loans at source.
‘However, if a student loan borrower receives an occupational, private or state pension and also completes a self-assessment tax return, the pension will be subject to student loan deductions if they earn above the threshold. Therefore, if a student loan borrower’s total income exceeds £21,000 in the 2017/18 tax year (plan 2), they will need to repay the student loan.’
Assuming you are a plan member, I would contact the Teachers’ Pension plan administrator, explain your situation, and get their written opinion on whether they would expect to deduct student loan payments from your pension income once they become payable, until you reach age 74.
If this seems likely, I would suggest you seek advice from a regulated financial adviser on whether it is worth paying off some or all of your loan early, before you retire.
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