Student loans: Wales

10 need-to-knows for Welsh students with 'Plan 2' loans

Wales has had the same student loans system for over a decade, yet there are still misconceptions about how it works, with many students (and parents) worrying about leaving university with £10,000s of debt. But that worry is mostly misplaced. This guide is written to bust common myths about how these 'Plan 2' student loans work for Welsh students who started uni since 2012.

Is this the right guide for you? This guide explains how undergraduate student loans work if you're a Welsh, regardless of where in the UK you go to study. If you don't live in Wales, or are a postgraduate, you're in the wrong place – see Which student loan am I on?

Prefer to watch rather than read? See Martin's video below

Note: This was recorded in 2019, but the theory behind repaying your student loan remains the same. Some of the figures mentioned in this video have changed since the video was made. The following figures are the rates and thresholds for 2023:
 

  • The maximum maintenance loan is now £13,635
  • Graduates repay 9% of everything they earn over £27,295
  • The rate of inflation is currently 7.3%
  • Due to high inflation, the rate of interest was capped at 7.6% from 1 January 2024.

Martin Lewis : Student loans decoded
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  1. You don't need the cash to pay for university

    Fearmongering headlines over the cost of university mean the facts often get overlooked. The reality is, you don’t need to pay anything upfront to go to university, so no one should be put off from going because they think they can't afford it.

    Tuition fees, typically up to £9,000 a year in Wales, are paid for you by the Student Loans Company. A loan and non-repayable grant is also available to cover your living costs (see point 6).

    Support is also available if you're wanting to study part-time, already have an undergraduate degree, or are disabled:

    • Part-time students

      Part-time students, often forgotten, make up 40% of all undergraduates. Fees start at around £4,500 with a maximum of £6,935 in 2023/24.

      Yet since 2012, for the first time, part-time students studying at least 25% of a full-time course have been eligible for tuition-fee Student Loans Company loans on exactly the same basis as full-time students.

      And if your course started on or after 1 August 2018, you are also eligible for maintenance loans or grants as well – although students over 60 don't qualify.

    • Disabled students

      Extra help, called disabled student allowances (DSAs), is available for disabled students to cover costs you have due to a mental health problem, long-term illness or another disability. You get DSAs on top of your other student finance and you don't need to pay it back.

      How much you get depends on your individual needs and where you're studying – it is not means-tested. The available amounts are per term, except for specialist equipment figures, which cover the entire length of your course.

      Full-time undergraduate and postgraduate students for 2023/24 will get a maximum of £33,146. This is a maximum figure, so you'll likely get less than this – and part-time students will get pro rata amounts. Look up how much you can get in Wales.

      The funding is usually paid directly to suppliers who provide the recommended support – whether it’s taxi companies, computers or software, ergonomic equipment, or non-medical helpers, such as mentors or specialist tutors. The funding is not usually given as a cash allowance to the student.

      As students don't get enough to cover living costs as it is, the DSAs can be a great extra help, so it's worth applying if you're eligible – especially as you don't have to pay them back.

      You may also be able to get help with "reasonable costs" for travel (eg, if you have to take a taxi because your disability makes using public transport too difficult). In these situations you'll get the extra it cost you, compared to what it would have cost you if you didn't have a disability.

      The DSA Assessment process involves finding a centre and attending an assessment. The process can take several months and should ideally be done before starting university. You can apply for DSAs even if you're not sure which university you're going to.

  2. It's not the size of the loan, but what you repay that counts

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    While you don't have to pay for it upfront, there's no escaping the fact university is expensive. Some students will graduate having borrowed roughly £65,000. That's a huge sum of money, and many parents and students worry about how they'll ever repay such a large 'debt'. But that's the wrong way of thinking about it for two reasons:

    Reason 1: It isn't a debt, it's a 'graduate contribution'

    Calling it a student loan is misleading because it implies that by taking it, you're getting into debt. But that isn't really the case, because the student loan doesn't work like any other type of debt. In fact, it works more like a tax because:

    • You only repay it if you earn over a certain amount – see point 3.
    • The loan gets wiped after 30 years – see point 5.
    • It's repaid through the income tax system – see point 5.
    • It does'nt go on credit files or prevent you getting a mortgage – see point 9.

    Reason 2:  You might not ever have to repay the 'loan' in full

    The price tag of university is mostly irrelevant. What matters in practical terms is how much you have to repay – and that can be a completely separate number from the total amount of tuition fees, maintenance loan and interest.

    Only around one in four starters on the Plan 2 system are likely to repay their loan in full, while roughly three quarters won't. Which group you're in depends on how much you go on to earn in your career. If you're a higher earner, you may pay it off, but lower-earners probably won't.

    So, rather than second guess, it's better to think of your student loan repayments as a graduate 'tax' – once you're earning enough, a contribution will come out of your payslip for a large chunk of your working life.

  3. You won't pay anything back until you're earning over the 'repayment threshold' – currently £27,295

    Once you leave university (as long as you haven't taken out a postgraduate loan to complete a master's) you only repay your undergraduate student loan when you're earning above £2,274 a month (equivalent to £27,295/year) and then it's fixed at 9% of everything you earn above that.

    Earnings mean any money from employment or self-employment and, in some cases, earnings from investment and savings. If you've started repaying the loan, but then lose your job or take a pay cut, your repayments drop accordingly.

    Repaying your student loan will vary depending on how much you're earning. In simple terms – the more you earn, the more you'll repay, as the table below shows.

    What you'll repay on a Plan 2 student loan

    Salary What you'll repay each year
    £20,000 £0
    £30,000 £243
    £40,000 £1,143
    £50,000 £2,043
    £60,000 £2,943
    £70,000 £3,843
    £80,000 £4,743
    £90,000 £5,643
    £100,000 £6,543

    Figures for repayments each year are only until either you've cleared your balance, or 30 years have passed, whichever is first. 

    Further info on repaying

    • Technically you repay 9% above £2,274 a month – important if you get bonuses

      You only have to pay back your student loan if you earn over the earnings threshold in a tax year. Yet most payrolls work on a monthly basis. So the £27,295/year threshold is seen as £524 per week or £2,274 a month.

      If you earned over that in a month, such as for a bonus, you could've had the money taken off you. Or if you stopped work halfway through the year, money could've been taken off you, even though in total you earned under £27,295 in the year.

      If that's happened to you, you may be due money back. See the Student loan overpayment guide. 

      Yet if you earned over £27,295 in a year, but due to irregular income too much was taken from you (eg, you earned £28,000, but had more than £63.45 taken) you can't claim this back, as once you earn over £27,295, your repayments are paid at everything you earn on £2,274/month.

    • The very highest earners aren't the highest payers

      The more you earn, the more you repay. Yet a quirk of the system means technically, beyond a certain point, that's not true.

      In truth, for the huge majority of people this isn't relevant – so feel free to skip this technical point – but we add it in for technical correctness and because from a political perspective it is worth examining.

      This quirk happens because seriously high earners pay off so quickly they have less time to accrue interest. If we take a ludicrous example to prove the point, if someone earned a billion pounds in their first month of work, they'd have cleared the debt in one month, so no interest would've accrued.

      Of course they still repay far more in total than low earners, but it does mean rather perversely that very, very high earners repay less than high earners.

    • Does savings, pensions or investment income count for loan repayments?

      Yes, but only if you have annual income of at least £27,295, within which at least £2,000 comes from savings interest, pensions, or shares and dividends.

      If so, this will also be treated as part of your income for repayment purposes. You'll need to repay 9% of that too via self-assessment.

    • How are student loans treated for tax purposes?

      While the amount you pay is calculated based on your pre-tax income above £27,295/year, the money is taken after you've paid tax. For example...

      If you earn £34,000 a year gross (pre-tax) salary, you will repay £603.45 a year (9% of the £6,705 above £27,295).

      Yet you still pay tax on the entire £34,000 income. You don't get any tax breaks on the fact you're repaying the student loan.

    • Do I still have to repay my student loan if I move overseas?

      The answer is yes. The student loan has been set up as a contract, not a tax. Therefore, the fact that you're no longer living in the UK doesn't affect that contract.

      The rules state you're still obliged to repay 9% of all earnings above the local equivalent £27,295/year (2023/24). Not doing so could lead to substantial penalties. And this local equivalent isn't just a currency translation, it factors in the cost of living in your country, so it can be radically different.

      If we ignore the moral obligation to repay the state for the education it provided you, the real question here isn't "Do I have to?" but "How can they make me?"

      This is an issue of enforcement. Certainly if you temporarily leave the UK and come back having missed some payments, expect to be pursued. If you move abroad permanently, never to return, there may be no attempt to pursue you in a foreign court. But there are no guarantees of that.

      What's more, the Government has said it will chase people who move abroad more thoroughly than it has in the past – through 'sanctions' and prosecution. We'll update this guide when more on this becomes available.

      Some further information on this for current graduates (likely to be similar for future graduates) is available on the Student Loans Company website, though it's a bit sketchy in parts.

    • When and how does the Plan 2 repayment threshold change?

      The repayment threshold has been frozen at £27,295 until April 2025. It'll then increase on 6 April each year, in line with the Retail Price Index (RPI), which is a measure of inflation.

      This is a change from how it worked before the current freeze, as the threshold used to rise in line with average earnings, rather than RPI.

      Over the long-term, it's predicted that average earnings will grow substantially faster than RPI. So, as earnings grow over time, more and more graduates will begin to earn above the repayment threshold and therefore start paying back their student loan.

      The table below shows what the Plan 2 repayment threshold was in previous  years.

      Plan 2 repayment threshold in previous years

      Date Annual repayment threshold
      6 April 2016 to 5 April 2018 £21,000
      6 April 2018 to 5 April 2019 £25,000
      6 April 2019 to 5 April 2020 £25,725
      6 April 2020 to 5 April 2021 £26,575
      6 April 2021 to present £27,295
  4. Interest has been capped at 7.6% (for now)

    Interest is added to your student loan and the rate you pay changes each September, based on the previous March's RPI inflation rate. In March 2022, RPI was at 9%. But as this was unusually high, the Government decided to temporarily cap student loan interest. It's currently 7.6% from 1 January 2024.

    Here's how the interest added usually works (when it's not been capped)...

    While studying: The interest rate is set at inflation (RPI) + 3%

    After studying: (from the April after you graduate):

    - Earn under £27,295: It is set at inflation (RPI)
    - Earn over £49,130: It is set at inflation (RPI) + 3%
    - Earn between the two: It is a sliding scale

    Remember, being charged interest isn't the same as needing to repay it. In practical terms for lots of graduates – especially those who never become high earners – they'll never end up repaying any interest, so it's meaningless.

    • Plan 2 interest rates in previous years

      The rates shown in the table below are the maximum for each period. As explained above, depending on your income, the interest rate you were charged might have been lower than the maximums shown.

      Plan 2 interest rates in previous years

      Date Interest rate
      1 December 2023 to 1 January 2024 7.5%
      1 September to 1 December 2023 7.3%
      1 June to 31 August 2023 7.1%
      1 March to 31 May 2023 6.9%
      1 December 2022 to 28 February 2023 6.5%
      1 September 2022 to 30 November 2022 6.3%
      1 March 2022 to 31 August 2022 4.5%
      1 January 2022 to 28 February 2022 4.4%
      1 October 2021 to 31 December 2021 4.1%
      1 September 2021 to 30 September 2021 4.2%
      1 July 2021 to 31 August 2021 5.3%
      1 September 2020 to 30 June 2021 5.6%
      1 September 2019 to 31 August 2020 5.4%
      1 September 2018 to 31 August 2019 6.3%
      1 September 2017 to 31 August 2018 6.1%
      1 September 2016 to 31 August 2017 4.6%
      1 September 2015 to 31 August 2016 3.9%
      1 September 2014 to 31 August 2015 5.5%
      1 September 2013 to 31 August 2014 6.3%
      1 September 2012 to 31 August 2013 6.6%
  5. There are no debt collectors and whatever you've still left to pay is wiped after 30 years

    All student loans since 1998 have been repaid through the payroll, just like income tax. What this means is that once you're working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your bank account each month already has it removed.

    This means that if you're an employee, no debt collectors will come chasing as you don't have a choice in the matter and will have paid it automatically.

    You stop owing either when you've cleared the debt, or when 30 years (from the April after graduation) have passed, whichever comes first. So if you never get a job earning over the threshold, you won't have repaid a penny.

    It's one reason those who are near retirement, who don't have a degree and want one, find it very appealing as unless they've a huge pension, they know they'll never have to repay.

    • What happens on death or incapacity

      The debt is also wiped if you die, so it won't be passed onto your beneficiaries as part of your estate. It's also wiped if you're permanently disabled in such a way that you'll be permanently unfit to work (in such a case, earnings will usually be under the threshold anyway, but this rule's there for rare cases where unearned income is above the threshold to allow the recipient to keep it all).

    • How do you repay if you're self-employed?

      You always repay the student loan in the same way as you pay income tax.

      For the self-employed, this is done via HM Revenue & Customs' self-assessment scheme. At the end of each tax year, you calculate your earnings and the appropriate amount of tax and loan repayments, and then send it to HMRC. This also applies if you have additional self-employed earnings on top of employment.

      If you're self-employed and fail to pay, the Student Loans Company will try to get in touch with you. Ignore that, and it will send debt collectors your way, and you could eventually end up in court. More information is available for graduates on the Student Loans Company website.

  6. There's a grant and a loan to help with your living costs

    Tuition fees aren't the only expense you have to worry about at uni, you also need to pay for your living costs while you're there – from food and accommodation to textbooks and travel.

    To cover these costs, full-time Welsh students usually get a mix of the following:

    1. A non-repayable grant. The Welsh Government Learning Grant (WGLG) is for full-time students to help towards their living costs. You DON'T have to repay this.

    2. A maintenance loan. Welsh students can also take out what's called a maintenance loan to cover their student living costs. This gets paid into your bank account each term and you pay it back in exactly the same way as your tuition fee loan – it's all seen as part of the same student loan.

    How much of each element you get depends on your family income – the higher it is, the smaller your grant will be and therefore the larger your loan will be. Your loan entitlement also varies depending on where you'll be living when you're at uni – either at home, away from home (but not in London), or away from home in London.

    Crucially, while the proportion of grant and loan varies, everyone in Wales gets the same total amount of support, as the tables below show:

    Living at home

    Household income       Non-repayable grant Maintenance loan Total
    £18,370 or less £6,885 £3,065 £9,950
    £25,000 £5,930 £4,020 £9,950
    £35,000 £4,488 £5,462 £9,950
    £45,000 £3,047 £6,903 £9,950
    £59,200 or more £1,000 £8,950 £9,950

    Figures are for the 2023/24 academic year.

    Living away from home: Outside London

    Household income Non-repayable grant Maintenance loan Total
    £18,370 or less £8,100 £3,620 £11,720
    £25,000 £6,947 £4,773 £11,720
    £35,000 £5,208 £6,512 £11,720
    £45,000 £3,469 £8,251 £11,720
    £59,200+ £1,000 £10,720 £11,720

    Figures are for the 2023/24 academic year.

    Living away from home: In London

    Household income Non-repayable grant Maintenance loan Total
    £18,370 or less £10,124 £4,511 £14,635
    £25,000 £8,643 £5,992 £14,635
    £35,000 £6,408 £8,227 £14,635
    £45,000 £4,174 £10,461 £14,635
    £59,200 or more £1,000 £13,635 £14,635

    Figures are for the 2023/24 academic year.

    In order to get your funding in time for the start of uni you needed to have applied to the Student Finance Wales and got your application in by 26 May if you're a new student. Returning students had until 30 June.

    This is the last date at which you're guaranteed to receive your loan in time for the start of the Autumn term. If you don't apply in time, you'll still get finance, it just might not be with you for the start of the term, which can make budgeting more difficult.

    The biggest problem is the loan isn't big enough

    While most media outlets like to focus on the headline debt figures, in real terms the main issue most students face is that the loan isn't big enough. The amount of money to live off can barely cover accommodation fees in some circumstances.

    And right now, the rate of inflation is rising faster than maintenance loans are increasing. Therefore it's crucial to ensure there is a real focus on budgeting, and you don't spend the cash the first few weeks of term.

    Part-time jobs, any grants and extra cash from parents will all help. See Student MoneySaving tips for more on how to make the cash stretch further and try our student budgeting planner.

    Family income dropped in the last two years?

    Your maintenance loan entitlement is usually based on the tax year two years prior to the year you apply. But if you think your family income in the 2023/24 tax year will be at least 15% lower than in the 2021/22 tax year, you may be able to get more maintenance support by applying for a current year income (CYI) assessment.

    • Are there any other grants available?

      The special support grant (SSG) can help with up to £5,161 per year, but it has specific eligibility criteria that you need to meet, eg, being a single parent, over 60, disabled or entitled to certain benefits. You may be able to get some additional grant through the WGLG as well. Getting the SSG won't affect how much maintenance loan you can get.

      A handful of Welsh students may also be lucky enough to be awarded a scholarship of up to £3,000 if they choose to study their course in Welsh. For more details, visit the Coleg Cymraeg website.

    • Is there funding available for the over-60s?

      Yes. Over-60s are able to apply for loans for living costs too if they're studying full-time. The maximum loan for living costs in 2023/24 for all full-time students aged 60 or over is £4,106/year

  7. Beware paying tuition fees upfront, it could leave you £10,000s worse off

    Many parents save up to avoid their children getting into 'debt'. Even more horrifically, some borrow money themselves so their children won't need student loans.

    That's a petrifying thought because a student loan is the 'best' form of debt you'll ever get. The interest is relatively low and crucially you only need to repay it if you earn enough.

    Even if you've got the savings it can be very bad financial logic. Let's take a look...

    An example:

    Paul wants to study agricultural science. His parents decide they don't want him getting the tuition fee loan and shell out £28,000 of their hard-earned cash to pay his tuition fees, and give him £20,000 to live off over three years.

    He graduates and wonderfully decides to go and work for a charity based in Africa for 10 years, where he never earns over £27,295. Then he comes back, gets married and becomes a full-time parent of their three children.

    They paid £48,000 for money Paul will never need to repay. In fact, they'd have been far better off to save the money towards a mortgage deposit for him, as that's a far more difficult task.

    Of course, that's an extreme example, but if you are considering paying tuition fees upfront, it can still be a waste of cash even for those who earn well over £27,295 after university. And remember, if you take the loan and end up being a future high-earner, you can always repay the loan early...

  8. You can repay early (but it may not be a good idea)

    You can choose to repay some or all of your student loan early, whenever you want. Yet this doesn't mean you should. While we generally encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that'll be a bad decision for some.

    That's because, under the 'Plan 2' system, many won't fully repay before the debt's wiped. So, overpaying each month could actually be worthless – as the overpayment's not reducing the amount you'd need to pay back at all.

    Even if you've enough cash to clear the loan in full, it may not be worth it as your repayments primarily depend on what you earn, not what you borrowed. For full help, see Student loan interest is at 7.1% – should I panic or pay it off?

  9. Student loans DO NOT go on credit files...

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    When you borrow from a bank for a credit card, loan or mortgage, lenders look at three pieces of information to evaluate if they'll make money from you – your application form, any previous dealings they've had with you and, crucially, the information on your credit reference files.

    Most normal financial transactions and credit relationships you have are listed on these files – yet student loans are not included. So the only way loan, credit card or mortgage providers know if you've got a student loan is if they choose to ask on application forms. They can do this and it happens, but in general it's only for bigger value transactions such as mortgages (see below).

    For more on how to boost your credit score as a student see Student credit scoring.

    ...but they CAN affect mortgages

    Many parents worry that with £9,250 tuition fees, the subsequent 'debt' will hit their child's ability to get a mortgage after studying.

    While having a student loan is worse than not having one when it comes to getting a mortgage, going to university often results in earning a higher salary, which usually cancels this out. And the 'debt' isn't a problem as student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.

    Where it does impact is in the affordability checks, which establish whether you can afford to make repayments on a mortgage. As you have lower take-home income with a student loan, you'll be assessed as being able to make smaller repayments. For more on this, see Student loans and mortgages.

  10. The system can and has changed

    It's important to understand Parliament is 'omnicompetent' – in other words, it's completely free to make and change rules made in the past. So, there's no 100% guarantee the system will remain unchanged for the 30 years until you're clear.

    In the past, it's always been thought that retrospective changes to the system go against natural justice and it hasn't happened – after all, each time a new student finance system has been introduced, it has only applied to new starters.

    Yet that sacred trust was breached in 2015, when the Government froze the repayment threshold for all those who started in 2012 onwards. This effectively hiked the cost of student loans above what people had thought they would be when they started university. That shouldn't happen – no commercial firm would be allowed to do this.

    The Government still refuses to enshrine many elements of student loan rates into statute – meaning it can change rates without a vote in the House of Commons. This is a very worrying situation, as it means it is difficult to trust the system. But unfortunately if you want to go to university you've got no choice.

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