The Student Loan landscape is set to get more complicated following the announcement that the Plan 1 threshold for Scottish borrowers will change in April 2021. In fact, there are two announcements and, hopefully, I have structured this article in a way that gives you the background and the two changes that affect people repaying their Student Loans
There are different systems of higher education within the administrations of the UK – one that is UK-based (for England) and one for each of the devolved administrations. When it comes to the Student Loan repayment process, there is a Joint Repayment Strategy amongst the relevant bodies in each administration. This results in a shared collection approach via Her Majesty’s Revenue and Customs (HMRC) and the Student Loans Company (SLC). The types of Loan that are available, the amounts of these Loans and the repayment thresholds applicable can (and do) vary.
In the devolved nature of Student Loans, in truth, the only thing that is common is that the repayments are sent to HMRC for attribution to Loan accounts maintained by the SLC. One of the most common ways of repaying a Student Loan is via the PAYE process. However, this is not the only way in which the Loan can be collected by HMRC. For example, an ex-student not in employment can repay their Loan via Direct Debit (which applies if they move overseas to live or work where they are required to inform the SLC).
Things have been relatively aligned amongst the UK nations and the devolution aspects of Loans and further education has been largely hidden from employers.
The current Scottish Government led by the Scottish National Party (SNP) have always committed that the focus on studying in Scotland is based on the ability to learn, not the ability to repay any loan that may be granted. The Independent Review of Financial Support for Students in Scotland Consultation ran from 30 June to 31 August 2017. It reported on 20 November 2017 and contained a number of recommendations.
On 09 June 2018, First Minister Nicola Sturgeon responded to this with the headline announcement ‘More financial help for students’. As you would expect from such a headline, more money is to be made available in student bursaries and the repayment of these.
With regard to the repayment of Student Loans only, this manifests itself in two ways and will impact employers and ex-students.
Currently, the same Student Loan is repayable for different periods of time depending on residence. In all circumstances and regardless of residence, the Loan is written off in the circumstances of death or the inability to work. Just looking at Loans in general, the current Plans are repayable as follows:
- England and Wales – 25 years after the April of graduation (Plan 1), 30 years for Plan 2
- Scotland – 35 years after the April of graduation (and only Plan 1 applies)
- Northern Ireland – 25 years after the April of graduation (and only Plan 1 applies)
Shirley-Anne Somerville MSP, Minister for Further and Higher Education, has confirmedthat the repayment terms in Scotland will reduce to 30 years by the end of 2018.
Whilst there are various Student Loans in Scotland, all Loans in Scotland are collected under Plan 1. This is different, for example, in England and Wales where employers have to process both Plan 1 and 2 Loans with Postgraduate Loans coming in 2019.
The SNP’s Programme for Government 2017/18 published in September 2017 committed to raise the Plan 1 threshold to £22,000 by the end of the Parliamentary term in 2021. On 09 June, Mrs Sturgeon announced that this would increase to £25,000 instead, effective April 2021. This was confirmed by Shirley-Anne Somerville in the same announcement on 06 July 2018.
This is all an exceedingly complicated result of devolution in the UK. Although, of the two changes above, employers really only need to be familiar with the changes to the repayment period, as this simply means more Scottish Student Loans will be stopping sooner.
However, it is the threshold change from April 2021 that employers and developers need to be aware of. It seems as though there will have to be a Plan 1 (Scotland) with a threshold of £25,000 and a Plan 1 (everywhere else in the UK) that will probably be lower. This poses a test for software developers and also HMRC who will have to differentiate ex-students between the two Plans.
The P45 is already unfit for purpose as regards Student Loans as it does not differentiate between Plan 1 and 2. It may be amended in 2019 to take into account PGLs in England and Wales but will it be future-proofed to take into account the two Plan 1 Loans from 2021?