Student Loan Changes Now – and Ahead

I suppose I had not really paid much attention to the Education (Student Loans) (Repayment) (Amendment) (No. 4) Regulations 2022.?

However, there are some really important changes that make fundamental and operational changes to the way we process Student and Postgraduate Loans through payroll.? These are referred to as Income Contingent Repayment (ICR) Student Loans, i.e., the amount that must be repaid by the borrower is contingent on the level of their income. ??

Inconveniently, whilst the 2022 Regulations amend the overriding deduction legislation (The Education (Student Loans) (Repayment) Regulations 2009 ), this is only available on the UK Government’s website in its original format.? However, since 2009, this important legislation has been updated over 700 times.? For anyone that likes to stay up-to-date with things, looking at the original 14-year-old legislation and picking the correct amendment is no mean feat.

Getting back to the 2022 Regs, but:

Education and skills are devolved issues meaning that not all countries have to operate the same.? However, the 2009 ICR Regs extend UK-wide, as does HMRC which is the collection agency.? Over the years, counties have sought to set their own rules, always updating the 2009 Regs leaving us with the situation:

• Plan 1 – applies to borrowers UK-wide
• Plan 2 – only applies to borrowers in England and Wales
• Plan 4 – only applies to Scottish borrowers, and
• Postgraduate Loans – only apply to English and Welsh borrowers

It’s complicated now and the 2022 Regs don’t bring the simplifications that are required.?

Note that the Regs apply UK-wide but, primarily, apply to borrowers in England or Wales.? So, already, we know that it will affect Plan 2 and Postgraduate Loans.

In 2022/23, the repayment threshold for Plan 2 was ￡27,295 per annum.? This would have increased in line with average earnings from April 2023, however, the Education (Student Loans) (Repayment) (Amendment) (No. 4) Regulations 2022 froze this for tax year 2023/24.? It will remain frozen at ￡27,295 up to and including tax year 2024/25.

From April 2025, the Plan 2 repayment threshold will be determined with reference to the value of the Retail Prices Index (RPI) rather than average earnings.

I think that Regulation 6 of The Education (Student Loans) (Repayment) (Amendment) (No. 4) Regulations 2022 will be my go-to place for explanation of the legislation behind all the different Plans.? There is a reorganisation and amendment to the 2009 overriding legislation which rename Postgraduate Loans.? Any legislation in England or Wales which gave us a Postgraduate Loan (Master’s or Doctoral) is now called Plan 3.

So, in operation, we now have:

• Plan 1 –UK-wide
• Plan 2 – England and Wales
• Plan 3 – England and Wales
• Plan 4 – Scotland

All reference to a Postgraduate Loan in legislation has been replaced by reference to Plan 3.

PLUS:

Eagle-eyed readers will have spotted that Regulation 6 adds a Plan 5.? This gives effect to a written statement in the House of Commons on 24 February 2022 by the Secretary of State for Higher and Further Education in England.? From 01 September 2023, rather than a student taking out a Plan 2 ICR Loan, they will only be able to take a Loan out under the Plan 5 conditions which, in summary, are:

• Repayable over 40 years (rather than a Plan 2 of 30 years)
• Repayment threshold of ￡25,000 until the end of tax year 2027/28 (rather than a Plan 2 threshold of ￡27,295)
• Repayable for the first time from tax year 2026/27, including repayments via payroll
• Repayment percentage of 9% (the same as Plan 2)

Simply, the UK Government wants to ensure that more ex-students repay more of their Student Loan.? So, for English borrowers, there will be no new Plan 2 Loans from the start of the academic year 2023/24.?

If Wales did not decide on this devolved policy, by default, Welsh borrowers would have also been bought into the Plan 5 regime.? On 02 May 2023, however, Jeremy Miles MS, The Minister for Education and Welsh Language (in Wales) issued a Press Release stating Welsh borrowers will remain under the Plan 2 regime (with the higher threshold and lower repayment period).

We have an increasingly complicated system:

• Plan 1 – applies UK-wide
• Plan 2 – applies in England (for borrowers post-2012 up to 31 August 2023)
• Plan 2 – applies in Wales (for borrowers post-2012 and post-31 August 2023)
• Plan 3 – previously known as Postgraduate Loans, applies in England and Wales
• Plan 4 – applies for borrowers in Scotland
• Plan 5 – applies for borrowers in England from the start of academic year 2023/24 (but not in payroll until April 2026)

We have the all-important 2009 legislation that is only available in its current form.? We have HMRC’s Collection of Student Loans Manual which has not been updated since April 2021.? Yet, we have a Student Loans system that requires us to have good guidance.?

Outdated guidance with the requirement for good guidance is not a healthy mix and a recipe for confusion.

Amongst other things, these are just some of the considerations that come to mind:

• Update the correct legislation to incorporate all the changes
• Update the Collection of Student Loans Manual
• Consider revising the P45, for example, quote the Plan type on it rather than just the Y / N indicator
• Revise the Starter Checklist.? The Student Loan section will be so complicated (and will not apply to every new starter anyway).? Therefore, why not consider a Starter Checklist (Tax) and Starter Checklist (Student Loans)?
• We have until April 2026 before we start to make the first payroll deductions.? In this time, English borrowers need to be identified by HMRC, software developers must have specifications and employers must have guidance

Never a dull moment in payroll and reward and the lesson for me is to pay even more attention to legislation.