Students: Loans

(asked on 6th November 2020) - View Source

Question to the Department for Education:

To ask the Secretary of State for Education, what steps he is taking to ensure that the interest charged on Plan 1 student loans during maternity leave does not cause unfair financial hardship on women.


Answered by
Michelle Donelan Portrait
Michelle Donelan
Secretary of State for Science, Innovation and Technology
This question was answered on 13th November 2020

The system for setting interest rates on student loans is set out in The Education (Student Loans) (Repayment) Regulations (2009), as amended. The interest rate on Plan 1 (pre-2012) income-contingent repayment student loans is the Retail Price Index (currently 2.6%), or the Bank of England base rate + 1%, whichever is lower. The current interest rate of 1.1% will remain in place until such time as the Bank of England base rate changes.

The current system protects borrowers, including people on maternity leave and other forms of parental leave, if they see a reduction in their income. Repayments are made based on a borrower’s monthly or weekly income, not the interest rate or amount borrowed, and no repayments are made for earnings below the repayment thresholds. Repayments are calculated as a fixed percentage of earnings above the relevant repayment threshold. The annual repayment threshold for Plan 1 borrowers is currently £19,390, rising to £19,895 from 6 April 2021. Any outstanding debt is written off at the end of the loan term with no detriment to the borrower.

If, at the end of the year, the borrower’s total income is below the annual threshold, they may reclaim any repayments from the Student Loans Company made during that year.

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