Is it cheaper for high earners abroad to go on the non-compliance rate?

StillSomewhatConfused

Question is about living abroad and having a plan 2 student loan which has been being repaid  every month for the last year and have been asked to provide information for the annual review.

My son and I notice that if he does not provide my employment information, he will get charged a 'non-compliance' interest rate and it seems to be RPI + 3%. It seems however that he would still be charged RPI + 3% if income information is provided as his salary is above the threshold, but the calculated monthly payments would be higher due to a reasonably high income than if he paid the default amount for that country.

Is this the case? It seems like not providing employment information will not change the interest rate, but will lower the required monthly payment (by more than half). Or is the non-compliance interest rate a 3% penalty on top of the highest possible rate? 

Thanks in advance.

DullGreyGuy

If you are non-complaint they simply assume you are earning over the upper threshold and so charge you the RPI + 3% (currently there is a lower cap). So if you are actually over the upper threshold then there is no interest penalty for not being compliant. 

As to the actual repayment, that will depend on your country and salary, the fixed amount may be better or worse. Obviously for many here who hate debt would argue having a loan attracting interest far higher than what you can get from savings etc then you are better off paying it as quickly as possible rather than paying more interest by virtue of having a larger outstanding debt. 

StillSomewhatConfused

DullGreyGuy said:

If you are non-complaint they simply assume you are earning over the upper threshold and so charge you the RPI + 3% (currently there is a lower cap). So if you are actually over the upper threshold then there is no interest penalty for not being compliant. 

As to the actual repayment, that will depend on your country and salary, the fixed amount may be better or worse. Obviously for many here who hate debt would argue having a loan attracting interest far higher than what you can get from savings etc then you are better off paying it as quickly as possible rather than paying more interest by virtue of having a larger outstanding debt. 

Thanks for your reply, he is above the upper threshold which is relatively low compared to salaries (UAE), so we think this means he is already RPI + 3%. We were trying to work out whether the RPI + 3% was on top of the higher rate interest that he is already incurring. The fixed amount is about half of what he would be paying (working that out as 9% of the difference above the lower threshold).

silvercar

The thresholds from overseas change based on the cost of living in the specific country. The full list is here: https://www.gov.uk/government/publications/overseas-earnings-thresholds-for-plan-2-student-loans/overseas-earnings-thresholds-for-plan-2-student-loans-2024-25

For UAE it is 

United Arab Emirates

U.A.E. Dirham

0.21901

£21,840.00

£39,305.00

£297.60

KEY. Exchange rate, lower earning threshold, higher earning threshold, monthly repayment. So earn over £39,305 and the interest is RPI+3%. (however there is a current interest rate cap of 7.8% in play).


How they calculate your repayments is shown here: https://www.gov.uk/government/publications/overseas-earnings-thresholds-for-plan-2-student-loans

You are correct that if you don’t declare, you are charged the repayment shown above and the interest is RPI+3. There is no further penalty.

silvercar

StillSomewhatConfused said:

DullGreyGuy said:

If you are non-complaint they simply assume you are earning over the upper threshold and so charge you the RPI + 3% (currently there is a lower cap). So if you are actually over the upper threshold then there is no interest penalty for not being compliant. 

As to the actual repayment, that will depend on your country and salary, the fixed amount may be better or worse. Obviously for many here who hate debt would argue having a loan attracting interest far higher than what you can get from savings etc then you are better off paying it as quickly as possible rather than paying more interest by virtue of having a larger outstanding debt. 

Thanks for your reply, he is above the upper threshold which is relatively low compared to salaries (UAE), so we think this means he is already RPI + 3%. We were trying to work out whether the RPI + 3% was on top of the higher rate interest that he is already incurring. The fixed amount is about half of what he would be paying (working that out as 9% of the difference above the lower threshold).

The current cap is 7.8%. You won’t be charged more than that. If the fixed amount is less than what he would be paying, it does mean lower repayments if he doesn’t declare. However, if he is likely to be a high earner for a long time and eventually clear his loan, it may make sense to pay off his loan quicker as he will be charged interest on the outstanding balance for the length of the loan. So repaying early could be money well spent. Depends on what his future plans are and whether the money could be better used elsewhere.