Plan 1 & Plan 2 loans

PenguinForever

Hey!

I’ll be the first to admit, I am extremely careful and ‘on the ball’ with all my finances generally. However, the one that I have not been on the ball with, is my student loan! For years now, it just comes out of my wages and although rather annoyingly it is around £140 every month, I tended to just think it is what it is. However, after watching the show last night, I decided to look into my account further. It seems like I have a plan 1 and plan 2 loan. This is because I started my university course in September 2011, but in September 2014, I undertook a masters and took out a plan 2. 

At the moment I have £18,479 in total debt in my account. 

When I look into it in further detail, my plan 2 has a total of -£144. 

So it looks like I’m in credit!

whereas, my plan 1, I owe a total of £18,624. 

However, when I look under that plan, it says since April I have only paid off £312 since April this year, but they have added £616 interest! Double what I have paid?

it all just seems really confusing to me and I don’t quite understand the procedure when you have both plans? Does things look correct? I’m planning on ringing them, but just wanted advice from you guys first.

PenguinForever

I forgot to add, under plan 2, it says I have paid off £958 this year, but interest added is -£1.53?

silvercar

I'm assuming your masters was something like a pgse, because loans for masters weren't available until September 2016. That aside you have a plan 1 loan with a threshold of £22,015 and a plan 2 loan with a threshold of  £27,295.

Your monthly repayments will be 9% of everything over the thresholds. So you pay 9% of earnings over £22,015. The amount between £22,015 and £27,295 is assigned to your plan 1 loan and the remainder to your plan 2 loan. So £5,280 x 9% is about £40 a month. That goes to your plan 1 loan and the remainder, about £100 a month to your plan 2 loan. 

I suspect these negative amounts are because you have very recently come to the point where you have cleared your plan 2 loan and the slc needs to adjust for that. They work slowly and it can take months for the situation to be rectified, phoning may make it quicker.

As you have only been paying £40 a month to plan 1, that would explain why it only has a repayment since April of £312. Now that your plan 2 is cleared, all your repayments will go to plan 1. As you have correctly surmised, the interest on loans can be greater than the repayment and so the debt mounts up. Plan 1 interest rate is 6.25%, so that would be about £100 a month. Now that all your £140 a month repayments will go towards the plan 1 loan (the plan 2 having been cleared) you should see the balance dropping. Up to now the repayments of £140 a month were split between the 2 loans, with the majority going to plan 2, so the interest charged was greater than the repayments for the plan 1 loan only.

PenguinForever

Thank you so much. Your post was clear and incredibly informative! It makes total sense. Thank you for taking the time out to reply to me!