Student Loan Repayments During Parental Leave

When you go on parental leave, your student loan repayments are affected by the change in your income. The fundamental principle remains the same: you only make repayments when your income exceeds the repayment threshold for your loan plan.

Key Points to Understand

• Income-based system: Student loan repayments are based solely on your income, not on how much you borrowed or how much you still owe
• Automatic adjustments: If your income drops below the threshold while on parental leave, your repayments will automatically stop
• No penalties: There are no penalties or negative consequences for not making repayments during periods of lower income
• Interest continues: Interest will continue to accrue on your loan during parental leave, even if you're not making repayments

The PAYE System During Leave

For employees who repay through PAYE (Pay As You Earn):

• Your employer will automatically calculate if repayments are due based on each payment you receive
• If your parental pay drops below the equivalent monthly or weekly threshold, deductions will stop
• When you return to work and your income increases again, repayments will automatically resume if your income exceeds the threshold

Thresholds for Different Loan Plans

Whether you need to make repayments during parental leave depends on your loan plan and its repayment threshold:

Statutory Maternity Pay (SMP) is treated as income for student loan repayment purposes. However, because SMP is typically lower than your regular salary, you may find your repayments reduce or stop entirely.

How SMP Works

SMP is paid for up to 39 weeks and consists of:

• First 6 weeks: 90% of your average weekly earnings (before tax)
• Remaining 33 weeks: £172.48 per week or 90% of your average weekly earnings (whichever is lower)

Impact on Student Loan Repayments

During the first 6 weeks of SMP, when you receive 90% of your regular earnings:

• If your normal salary is well above the threshold, you may still need to make repayments during this period
• The repayment amount will be lower than usual because your income is reduced to 90%

During the remaining 33 weeks, when SMP drops to £172.48 per week (approximately £747 per month):

• This amount is well below all student loan repayment thresholds
• Student loan repayments will automatically stop through PAYE

Example Calculation

For a Plan 2 borrower with a pre-maternity salary of £35,000 per year (approximately £2,917 per month):

• Normal monthly repayment: (£2,917 - £2,274) × 9% = £57.87
• First 6 weeks of SMP (90% of earnings): Approximately £2,625 per month, resulting in a repayment of (£2,625 - £2,274) × 9% = £31.59
• Remaining SMP period (£747 per month): No repayments as income is below the threshold

Statutory Paternity Pay (SPP) is also treated as income for student loan repayment purposes. Since paternity leave is typically shorter than maternity leave, the impact on your repayments may be minimal.

How SPP Works

Statutory Paternity Pay:

• Is paid for up to 2 weeks
• Is £172.48 per week or 90% of your average weekly earnings (whichever is lower)
• Can be taken as either one week or two consecutive weeks

Impact on Student Loan Repayments

For most borrowers on SPP:

• If you take the full two weeks, your monthly income will be a combination of your regular salary and SPP
• This blended monthly income may still exceed the repayment threshold, especially if you're only on paternity leave for part of the month
• If your blended monthly income remains above the threshold, you'll continue making repayments, though at a reduced amount

Example Calculation

For a Plan 2 borrower with a salary of £35,000 per year taking two weeks of paternity leave in a 4-week month:

• 2 weeks of regular pay: £1,458 (half of monthly salary)
• 2 weeks of SPP: £344.96 (£172.48 × 2)
• Total monthly income: £1,803 (below the Plan 2 monthly threshold of £2,274)
• Result: No student loan repayment for that month

Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) allow parents to share up to 50 weeks of leave and 37 weeks of pay between them.

How ShPP Works

Statutory Shared Parental Pay:

• Is paid at £172.48 per week or 90% of your average weekly earnings (whichever is lower)
• Is treated the same as SMP for tax and student loan purposes
• Can be taken in blocks separated by periods of work

Impact on Student Loan Repayments

For borrowers on ShPP:

• During periods of ShPP, your income will likely be below the repayment threshold
• During periods when you return to work between blocks of leave, repayments will resume if your income exceeds the threshold
• This creates a more variable repayment pattern compared to traditional maternity or paternity leave

Flexible Working and SPL

Some parents use Shared Parental Leave to work part-time, which affects student loan repayments:

• If you work part-time alongside SPL, your total monthly income will be a combination of wages and ShPP
• If this combined income exceeds the monthly threshold, you'll continue making repayments
• Your employer will automatically calculate the correct repayment amount based on your total income

Not all new parents qualify for statutory pay through an employer. Some may receive Maternity Allowance or other benefits instead.

Maternity Allowance

Maternity Allowance is a benefit for those who don't qualify for Statutory Maternity Pay, including:

• Self-employed women
• Those who recently changed jobs
• Those who stopped working recently

Impact on Student Loan Repayments

For student loan purposes:

• Maternity Allowance is typically £172.48 per week for up to 39 weeks (similar to the lower rate of SMP)
• This is well below all student loan repayment thresholds
• No student loan repayments will be deducted from Maternity Allowance
• If you're self-employed, the reduced income during this period will be reflected in your Self Assessment tax return

Other Benefits and Universal Credit

Other benefits that may be relevant during parental leave:

• Universal Credit: Not counted as income for student loan purposes
• Child Benefit: Not counted as income for student loan purposes
• Childcare grants: Not counted as income for student loan purposes

These benefits don't trigger student loan repayments, regardless of the amount received.

Many parents choose to return to work part-time after parental leave, which has implications for student loan repayments.

How Part-Time Work Affects Repayments

If you return to work on reduced hours:

• Your monthly income will be lower than your pre-parental leave income
• You'll only make repayments if your new part-time income exceeds the monthly threshold
• If your income falls below the threshold, repayments will automatically stop
• If your income remains above the threshold but is lower than before, your monthly repayments will decrease

Calculating Part-Time Repayments

For a Plan 2 borrower who previously worked full-time on £35,000 and returns at 3 days per week (60%):

• New pro-rated salary: £21,000 per year (£1,750 per month)
• Plan 2 monthly threshold: £2,274
• Result: No repayments as income is below the threshold

Gradual Return to Work

Some employers offer phased returns to work after parental leave:

• During a phased return, your income will gradually increase
• Repayments will resume once your monthly income exceeds the threshold
• Your employer will automatically adjust repayments based on your income each month

Additional Employment or Freelance Work

If you take on additional work alongside your part-time employment:

• PAYE employment income will have student loan deductions if above the threshold
• Self-employed/freelance income will be assessed annually through Self Assessment
• Your total income from all sources will determine your overall repayment obligation

Planning your finances before going on parental leave can help you manage the temporary changes in your income and student loan repayments.

Before Taking Parental Leave

Steps to prepare financially:

1. Calculate your parental pay: Understand exactly how much you'll receive and when it will change (e.g., after the first 6 weeks of SMP)
2. Budget for reduced income: Adjust your household budget to accommodate the temporary decrease in income
3. Check your entitlements: Investigate whether your employer offers enhanced parental pay above the statutory minimum
4. Estimate student loan saving: Calculate how much you'll save in student loan repayments during your leave to factor into your budget

Salary Sacrifice Considerations

Be aware of how salary sacrifice schemes affect parental pay:

• Parental pay is calculated based on your average earnings in the 8 weeks before the qualifying week
• Salary sacrifice arrangements (like pension contributions or childcare vouchers) reduce your qualifying earnings
• This can result in lower parental pay, which may further reduce or eliminate student loan repayments

Planning Your Return Date

Financial factors to consider when planning your return to work:

• The financial impact of extending unpaid leave versus returning sooner
• Whether returning part-time will put your income below the student loan repayment threshold
• The cost of childcare relative to your potential income and student loan repayments
• Tax-free childcare or childcare voucher eligibility

Long-Term Impact on Your Student Loan

Consider the broader implications:

• A period without repayments will extend the life of your loan slightly
• Interest will continue to accrue during parental leave
• For most borrowers, this temporary pause in repayments has minimal long-term impact since many loans are eventually written off
• The benefit of reduced monthly outgoings during parental leave typically outweighs the long-term loan implications