Repayment Threshold 2014/15

Ed-1

I haven't seen any posts regarding the plan 1 repayment threshold from April 2014. But it's set to go up by March's RPI which was 3.3%, so it should be £16910 from next April (16365*1.033 rounded up), knocking £49 off annual repayments. (This RPI figure also has implicatons on the interest rates from September, which I have seen an article on).

Interestingly I was reading up the history of the income contingent system and, had promises been kept, this threshold should actually be higher by now, but a series of events meant the threshold was frozen at £15000 for longer than originally intended. As part of the top-up fees debate in 2004, Labour raised the then threshold of £10000 up to £15000 with one of the concessions being to review it 5 years later, maintaining it at that level until April 2010 with the intention then been to uprate it by RPI annually using the prior March's inflation figure. The threshold was all set to be uprated from April 2010 but, as it happened, March 2009's RPI was negative (-0.4%) so, instead of lowering the threshold as would've happened if RPI was applied that year, Labour made a decision to maintain it at £15000 for a further year (as part of this decision, the interest rate was also set at 0% for that year, rather than at -0.4%). Fair enough. BUT, the threshold should then have been uprated by 4.4% in April 2011 using March 2010's RPI of 4.4%, but of course the general election got in the way (which incidentally was a major reason in the student support package being frozen in 2011/12 for the second year running) which meant once again the repayment threshold was frozen at £15000 for yet another year. :mad:

Finally, as part of agreements on the new funding system, the (now plan 1) repayment threshold was finally given the go ahead to be uprated annually from April 2012 by RPI (a whole 2 years later than Labour's original intention)! Better late than never I suppose. Strangely though, it is only in legislation at the moment to be uprated up to and including April 2015. After this it is set to be frozen yet again in April 2016 when they introduce a separate £21000 threshold for plan 2 loans (it should really be uprated again that year). I wonder if, had Labour won the 2010 general election, whether all loans would now actually be on a £21000 threshold (when they increased it in 2005 they increased it for all loans, including those already taken out)? Food for thought. Bit of interesting history in the development of the student loan system and how we really should all be making lower repayments at the moment!

This just goes to show that there's no guarantees of the £21000 repayment threshold been uprated from 2017 as this government might not even be in power after 2015! With this government's intention of there being two repayment thresholds from April 2016 (rather than keeping all loans with the same threshold as Labour did the last time a change of system happened), there's also an administerative burden on determining repayments as employer's won't know which threshold to apply as they won't know whether students have a plan 1 or a plan 2 loan. Since this change is going to happen in 2016, possibly under a new government, what's the odds of them making the £21000 a consistent threshold across both plan 1 and plan 2 loans?

Also, I have read announcements that Labour made a decision to introduce repayment holidays of up to 5 years (which was then cut to 2 years) from 2012. Does anyone know if these were scrapped or just completely forgotten about after the general election in 2010?

Poolie

I had posted the expected new threshold and interest rates in April, when the March RPI figure was announced. Please locate the threads around the 19th of April.

On the -0.4% RPI figure, the regulations previously stated the Secretary of State had to lay secondary legislation before Parliament showing the loan amount available and the interest rate which would apply for the next academic year. Charles Clark at the time, failed to lay the regulation on the interest rate as not to give everyone a reduction in their student loan balance, therefore the rate default to 0% because no rate had been supplied to apply.

Given the current rate from April 2014 is around £16190, for the threshold to reach £21,000 by April 2016 will require hyperinflation which would serious damage the country. Therefore the uprising to £21,000 will be a significant jump compared to the rises we have seen at the moment. At the end of the day, all these rises are only delaying the length of time it takes repayers to complete the loan repayment due to the threshold increase and salary increase not being on full par. I don't think Labour could have afforded to raise the rate to £21,000 after the 2010 general election given the cost of the student loan loan book at the present time. They need to repayments in so they can reborrow the money. Student Loans needs to become a self supporting system at the end of the day.

The £21,000 threshold will be applied to all post 1998 as the administrative burden on employers enough though they will all be HMRC RTI by then, will be an additional cost the employers will not want.

The current legislation on student loans does not permit any repayments holidays and I don't believe there are any plans to do so in the near to medium term. I also heard the threshold for writing off student loans was rising from £5 to £25, but this has failed to happen as well.

Ed-1

Poolie wrote: »

I had posted the expected new threshold and interest rates in April, when the March RPI figure was announced. Please locate the threads around the 19th of April.

On the -0.4% RPI figure, the regulations previously stated the Secretary of State had to lay secondary legislation before Parliament showing the loan amount available and the interest rate which would apply for the next academic year. Charles Clark at the time, failed to lay the regulation on the interest rate as not to give everyone a reduction in their student loan balance, therefore the rate default to 0% because no rate had been supplied to apply.

Given the current rate from April 2014 is around £16190, for the threshold to reach £21,000 by April 2016 will require hyperinflation which would serious damage the country. Therefore the uprising to £21,000 will be a significant jump compared to the rises we have seen at the moment. At the end of the day, all these rises are only delaying the length of time it takes repayers to complete the loan repayment due to the threshold increase and salary increase not being on full par. I don't think Labour could have afforded to raise the rate to £21,000 after the 2010 general election given the cost of the student loan loan book at the present time. They need to repayments in so they can reborrow the money. Student Loans needs to become a self supporting system at the end of the day.

The £21,000 threshold will be applied to all post 1998 as the administrative burden on employers enough though they will all be HMRC RTI by then, will be an additional cost the employers will not want.

The current legislation on student loans does not permit any repayments holidays and I don't believe there are any plans to do so in the near to medium term. I also heard the threshold for writing off student loans was rising from £5 to £25, but this has failed to happen as well.

It's fair enough saying the uprating of repayment thresholds only delays repayment, but if the balance of the loan is high enough then you can treat the repayment threshold as a graduate tax threshold, above which tax/repayments is/are deducted until the write-off date. So the higher it is the better.

I don't think there are any plans to raise the 'Plan 1' repayment threshold to £21000 in 2016. All the sources point to them retaining the current threshold (as uprated) as well as introducing

For example, at the bottom of this page on the repayment site it says what will happen if you have loans under plan 1 and under plan 2 (for cases where you've either completed your undergrad under plan 1 and then do a PGCE under plan 2, or dropped out of a course under plan 1 and then do a new degree under plan 2). It says 9% of income above the plan 1 threshold (currently £16365) up to the plan 2 threshold (£21000) will be allocated to the plan 1 loan balance, and 9% of income above the plan 2 threshold will be allocated to the plan 2 loan balance.

studentloanrepayment.co.uk/portal/page?_pageid=93,6678490&_dad=portal&_schema=PORTAL

I'm also aware that there has been consultations on exactly how employers will deal with two repayment thresholds which is discussed on this site:

hobbspayrollservices.com/blog/?p=1154

So all sources point towards plan 1 loans having larger deductions taken than plan 2 loans (but plan 1 loans will be written off after 5 years less repayments than plan 2 loans: 25 years as opposed to 30).

As I understand it, all loans under plan 1 are written off together 25 years after the first plan 1 loan entered repayment status.

However, if you do have a plan 1 and a plan 2 loan balance then presumably the plan 1 loan balance is written off first. The question then is when is the plan 2 loan balance written off? Is it 30 years after the first plan 2 loan entered repayment status (which won't be until at least April 2016) or is it 30 years from when the first plan 1 loan entered repayment status (as it would've been had plan 2 not been invented!)

You say plan 2 should be paid off before plan 1. Well, yes the plan 2 loan balance should be smaller but don't forget the interest applied on plan 2 is much higher than on plan 1.

Poolie

It does appear the Government have not decided how HMRC and employers will handle two potential thresholds.

Your are incorrect with your comment that all plan 1 loans will be written off. Plan 1 loans which are post 2006/07 are written off after 25 years. All plan 1 loans from 1997 to 2005/06 are only written off at the age of 65.

The plan 2 loans will be written off 30 years after the loan enters repayment status, which is clear from the published guidelines on student loan repayment.

amiehall

I'm sure they will end up with one threshold. My friends have enough trouble ticking the existing box on the P46 properly, forget having two sorts....

Ed-1

Poolie wrote: »

It does appear the Government have not decided how HMRC and employers will handle two potential thresholds.

Your are incorrect with your comment that all plan 1 loans will be written off. Plan 1 loans which are post 2006/07 are written off after 25 years. All plan 1 loans from 1997 to 2005/06 are only written off at the age of 65.

The plan 2 loans will be written off 30 years after the loan enters repayment status, which is clear from the published guidelines on student loan repayment.

Sorry, when I said that all plan 1 loans are written off 25 years after the first loan enters repayment status, I'm assuming all plan 1 loans are post-2006 loans. On this point, as I understand it, if any loans were taken under plan 1 prior to the 2006/07 academic year then all plan 1 loans aren't written off until age 65 even if some were taken under the post-2006 arrangements since existing customers retained their existing rights in the 2006 changes (hmrc.gov.uk/manuals/cslmanual/cslm16025.htm#IDARPISH).

It's an interesting situation regarding how they will decide on dealing with two repayment thresholds. I wonder if they will actually have this sorted before the general election in 2015 or whether they will end up leaving the next government to make a decision on how to implement it! I think they should do what Labour did the last time the threshold changed in 2005 when they uprated it from £10000 to £15000 for everyone. What Labour might've done after reading the Browne Review is uprate the £15000 threshold up to £21000 in April 2012 for everyone instead of this silly plan of branching off into two repayment plans with separate thresholds. I'm inclined to think the Coalition are deciding to do this as the previous system wasn't created by them and they didn't really want to touch it so instead decided to create a whole new system.

Ed-1

amiehall wrote: »

I'm sure they will end up with one threshold. My friends have enough trouble ticking the existing box on the P46 properly, forget having two sorts....

Unfortunately, we can't forget it as it's now come into force. The regulations outlining how students' repayments will work who have both plan 1 and plan 2 loans are now in force (2013 regulations):

www . legislation.gov.uk/uksi/2013/607/made

Point 8(b) states that the repayment threshold for a borrower that has both types of loan will be the lower threshold (to be known as the 'default threshold' from 2016). They are keeping a different threshold for plan 1 loans since these are written off 5 years earlier than plan 2 loans. But if you compare the two systems you can argue that plan 2 is better as with plan 1 you are potentially repaying more each year for 25 years than you would be on plan 2, then nothing for the 5 years after that (unless repaid in full before that), whereas with plan 2 you are repaying less each year for 25 years than you would be on plan 1, then potentially a lot more for the 5 years after that (as it's highly unlikely you'll ever pay it off).

Point 13 states that it will be the borrower's responsibility to inform an employer which type of loan (plan 1, 2 or both) they have so that the relevant repayment threshold can be applied. If a student does not inform the employer then even if they only have a plan 2 loan, the default (lower) threshold will apply instead of the £21000 threshold.

I wonder what would happen if someone with plan 1 and plan 2 loans told their employer they only had a plan 2 loan and so they used the (higher) £21000 threshold and had less repayments taken, either delibrately or accidentally. I can see this happening quite a lot to be fair given the amount of people that don't understand the current system, let alone a combination of two systems!