Still paying off your uni days? There may be some bad news on the horizon with student loans set to become even more expensive by the autumn. Last year, graduates were dealt a heavy blow when interest rates on student loans were hiked up from 4.6% an eye-watering 6.1%.
Not content to leave it there, BBC News reports that the government have announced a further increase, to 6.3%, due to take effect in September. Though Downing Street insists the hike is in line with inflation, that isn’t likely to soften the blow for self-employed professionals who are likely to be among the hardest hit.
Student loans & self-assessment
Under the present system, sole traders who pay their tax through the Self-Assessment system also pay student loans through that system. The repayments that self-employed graduates need to make is worked out depending on when the loan was originally taken out.
For Plan 1 and Plan 2 loans, the repayment rate is 9% of their income above a set threshold – which is £18,330 per annum for Plan 1s and £25,000 per annum for Plan 2s.
New proposals for taxpayers
Even at the current level, student loan repayments can significantly increase the amount self-employed professionals pay through self-assessment.
For those affected by the increase, that amount is only going to rise further, though there is the possibility that these repayments can be made in smaller, more frequent instalments rather than the large bill sole traders are lumbered with at the end of each tax year.
Last year, the government announced plans to replace the yearly self-assessment with quarterly tax returns. However, this made a lot of people very angry, so those plans were quickly scrapped.
Undeterred, the Conservatives are still planning to give more frequent VAT returns a test-run. Experts say this could well lead to mandatory quarterly reporting coming in after all.
Will the student loan interest rate increase affect you?
On a brighter note for some, the hike to 6.3% interest rates isn’t going to affect all graduates – only those who started uni after 2012, and only those earning a certain amount.
If you started university after 2012 and currently earn £45,000 or more then, yes, you will be paying the full 6.3% from September. However, if you earn anywhere between £25,000 and £45,000, then your interest rates will be based on a sliding scale between 3.3% and 6.3%.
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