Student finance: How can employers stay up to date?
Student finance appears to be an issue that regularly changes, meaning those in charge of payroll for businesses must adapt to keep up.
The student finance system is in the limelight again, after being criticised by Nicholas Barr, a professor at the London School of Economics who advised Tony Blair’s government on student loan reform in 2006.
According to a report in Business Matters, Mr Barr said that consecutive governments have made changes to the student loan system for “political gain”.
Successive governments have made tweaks to the system since student loans were first introduced in 1998. They were then increased in 2006 and 2012.
It is often a hot political issue as Government’s wish to lessen the burden of higher education on the taxpayer.
So, what is the current state of play for student finance and what do employers need to know?
What are the current student finance rules?
Students studying in England can take out loans to cover living costs and tuition fees. They then have to pay this back at 9 per cent of their earnings above a certain threshold.
What are the latest changes?
When tuition fees were tripled to £9,000 a year in 2012, a rule was also added that the debt would be cleared after 30 years. This meant that students who never earned a significant amount in earnings would never repay the full amount.
This year the Government has extended the period of repayment from 30 to 40 years.
Graduates will also have to start paying back their loans earlier, as the income threshold for repayment has lowered from £27,295 to £25,000.
These combined changes means that more graduates will pay back more of their loans.
What about interest rates?
The interest on student loans is set at 4.5 per cent which is linked to the retail prices index measure of inflation. This means it is set to rise further as inflation soars.
What do employers need to know?
An employer will need to start making deductions if a new employee has a ‘Y’ in the student loan box on their P45; a new employee completes a new starter checklist to confirm they have a student loan; the employer receives a SL1 start notice from HMRC; the employer receives a PGL1 start notice from HMRC.
Employers should check they know which loan type an employee has as this affects repayments.
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