Calculating Interest Paid for Federal Deduction on a UK Student Loan

Question

My spouse has a UK student loan. The loan has a 1.5% interest rate, and you only start repayments once you earn over a certain threshold. They do a calculation of how much you need to repay which I believe is 9% of what you earn over that threshold, so the repayment amount varies as your salary changes over time. The loan has no term—you just make repayments until it’s repaid, or until you reach an age when it is automatically discharged.

So…does anybody have any idea how to calculate how much of what we repaid in 2018 went towards interest for the purposes of the federal student loan deduction? The Student Loan Company just provides a statement of the monthly repayments and the new interest each month, with no indication of how much went towards repaying principal/interest. All my Googling just throws up how to calculate figures for a fixed-term loan like a mortgage or car loan with a known amortization schedule. Is there even a concept of splitting repayment amounts between principal and interest for such a loan?

Any advice would be a huge help!

Answer 1

I don't think it's possible to calculate this directly, however you can come up with a reasonable and defensible calculation (that will not overestimate the amount of payments that went to interest) like this:

1. Look at your annual statement (see the examples here) and identify the balance at the start of the year (£X), the payments you made during the year (£Y) and the interest added to the loan over the year (£Z).
2. If £Y >= £Z then £Z is the amount of payment that went to interest, and £Z - £Y is the amount that went to principal.
3. If £Y < £Z then £Y is the amount of payment that went interest, and no amount went to principal.

[Hat tip to @GaneshSittampalam who suggested this approach initially. I've marked this as CW so as not to steal reputation that is rightfully his!]