Plan 5 student loan

thefunniefarmer

My young person is completing their undergraduate degree this summer, they have had the minimum loan for three years. They have been accepted on to a masters programme starting in October and here is the quandary. If they take the masters loan it won't fully cover the fees, we are in a position to pay the shortfall plus accommodation fees and plan to give them the equivalent of this year's undergraduate maintenance loan but we could cover the cost of the fees too.

Can anyone explain how the two loans will be repaid once they start earning?

Glad

Assuming this is Student Finance England and their undergraduate loan is Plan five

The Masters loan is repaid alongside the undergraduate loan, not instead of it.

Once earning above the thresholds, they would repay:

Plan 5 undergraduate loan - 9% of earnings above the Plan 5 threshold (£25,000 p.a. currently)
Postgraduate Master's loan - 6% of earnings above the postgraduate threshold (£21,000 p.a. currently)

So yes, if earnings are high enough, deductions for both loans can run at the same time.

Very rough example, someone earning £30,000 would repay something towards both, not just one. Wether taking the Masters loan is worthwhile becomes a personal decision between reducing future salary deductions versus keeping more money available now.

Others may have done the Plan 5 + Master's combination and can coment from experience.

silvercar

15% of everything over £25k may become quite painful as years go by, if thresholds don’t increase.

On earnings of £30k, they’d have 9% on everything above £25k plus 6% on everything above £21k, so that’s £990 a year (£82.50 a month). vs £450 a year/ £37.50 a month with just the plan 5.

A few pay rises and inflation on earnings and they could be on a salary of £40k, when payments become £2,490 a year (£207.50 a month). vs £1,350 a year/ £112.50 a month with just plan 5.