Student Loan Direct Debit or Not

Jimmy9012

Hi Folks,


I have less than two years until my loans are repaid and have a letter advising to move to direct debit.
Will this be a good decision?


As I understand, my gross of 45000 is taxed. From that, 21000, is taken off, and then 0.09% of whats left is divided by 12 which = the monthly student loan take out from the payslip. Is that correct?
If so, moving to direct debit will have no affect and would be fine as the loan repayment is based on the NET pay.


But is the loan repayment calculated based on the GROSS pay? If so, paying from NET is worse right?


Not sure how this works, any advise.


Also, I earn 45k per year, my monthly student loan repayment is 220. Is that correct. I thought based on the rules it would be £180 per month, not 220. So, 45000 - 21000, remainder x 0.09. Then / 12.


Hmmm, help please


Thanks,
Jim

System

9% of gross income above £21,000 not 0.9%, I assume that was a typo. So yes it should be £180 a month.

Unless you expect your income to drop or your job to end then as you clearly earn enough to be repaying it in 2 years then there is no harm in setting up a DD and it would prevent HMRC collecting too much through your wages and then having to waste time getting it back off SLC.

TrustyOven

Jimmy9012 wrote: »

Also, I earn 45k per year, my monthly student loan repayment is 220. Is that correct. I thought based on the rules it would be £180 per month, not 220. So, 45000 - 21000, remainder x 0.09. Then / 12.

I'm in the same boat.

I assume the above calculation is in the scenario where you accept the move to Direct Debit repayments instead of PAYE, and that the monthly payments of £180 are lower than £220 because of the repayment being taken from Net Pay?

zippygeorgeandben

Yup same boat here. I've gone to the DD scheme, last month's salary was without the SLC deduction from salary but I'm yet to see it taken as a DD.
I earn £50k and my monthly repayment was £244. so it sounds about right to me.

Jimmy9012

Hi folks,


Thanks for the help. I am sure moving to Direct Bebit makes sense; firstly SLC will not continue to take more money once the loan is paid off in the interim time between the tax year and HMRC updating them. Secondly, no tax difference as loan repayments, as I have learned, are taken from NET pay.


I am not sure though that the repayments are correct. To confirm, I earn 45000, no additional income.
45000 - 21000 = 24000. So, 9% of 24000/12 is the monthly repayment right? Well, thats £180, yet i've been paying 220 for a while... what could I be missing here?


Best,
Jim

Jimmy9012

TrustyOven wrote: »

I'm in the same boat.

I assume the above calculation is in the scenario where you accept the move to Direct Debit repayments instead of PAYE, and that the monthly payments of £180 are lower than £220 because of the repayment being taken from Net Pay?

No, I was incorrect. Its £204 currently through PAYE. However, I think it is incorrect and should be £180. I will call them on Monday to confirm that, but also to switch to DD.

peter3hg

I'm assuming you started university pre 2012? The plan 1 income threshold is £17,775, not £21,000. This ties in exactly with your repayment figure.

adamh87

Salary sacrifice pension contributions reduce your monthly repayments to SLC, could that be a factor?

lantranhana

If you have both a Plan 1 and a Plan 2 loan you can’t change to direct debit repayments until one type of loan has been paid off in full. Once you have paid off one plan type you can then change to direct debit repayments in the last two years of the remaining loan.

Jimmy9012

Hi folks,


Just an update, I've now switched to DD. Peter3hg is correct, the calc is not based on 21k as I am on plan 1 loan. All is sorted, only 20 months of payments left now. Woot woot.


Best,
Jim