Student Loan Plan & Income Details
📊 Student Loan Deduction Breakdown
UK Student Loans operate as a specialized graduate tax collected automatically through employer PAYE payroll by HM Revenue & Customs (HMRC).
Understanding how your specific Student Loan Plan Type (Plan 1, Plan 2, Plan 5, or Postgraduate) and statutory repayment threshold determine your monthly salary deduction ensures complete paycheck transparency.
⚙️ Statutory Student Loan Repayment Thresholds for 2026/27
1. Undergraduate Repayment Plans (9% Repayment Rate)
You pay 9% of your gross annual salary above the threshold for your specific loan plan:
- Plan 1 (Pre-2012 England/Wales; all NI & Scotland): Repayment threshold £24,990 per year (£2,082/month).
- Plan 2 (2012 to 2023 England & Wales): Repayment threshold £27,295 per year (£2,274/month).
- Plan 5 (Post-August 2023 England): Repayment threshold £25,000 per year (£2,083/month).
2. Postgraduate Masters & Doctoral Loans (6% Repayment Rate)
- Postgraduate Plan: Repayment threshold £21,000 per year (£1,750/month). You pay 6% of your gross annual salary above £21,000.
- Combined Repayments: If you hold both an undergraduate loan (Plan 2) and a Postgraduate loan, you repay 15% total (9% Plan 2 + 6% PG) on earnings above £27,295.
📊 Practical Student Loan Worked Examples
Below are two worked calculation examples illustrating monthly student loan deductions:
- Gross Annual Salary: **£38,000.00**
- Plan 2 Repayment Threshold: **£27,295.00**
- Assessable Salary above Threshold: £38,000 - £27,295 = **£10,705.00**
- Annual Repayment (9% of £10,705): **£963.45 / year**
Calculation: Monthly PAYE deduction = £963.45 ÷ 12 = £80.28 per month.
- Gross Annual Salary: **£45,000.00**
- Plan 2 Repayment (9% above £27,295): (£45,000 - £27,295) × 9% = **£1,593.45 / year** (£132.79/mo)
- Postgraduate Repayment (6% above £21,000): (£45,000 - £21,000) × 6% = **£1,440.00 / year** (£120.00/mo)
Calculation: Total monthly PAYE deduction = £132.79 + £120.00 = £252.79 per month.
📑 Common Pitfalls & Student Loan Warnings
- Overpaying via Bonus or Overtime Month: Student loan PAYE deductions are calculated on a per-pay-period basis. If you receive an annual bonus or overtime payment in a single month, HMRC deducts 9% on that month’s elevated pay, even if your total annual salary ends up below the threshold.
- Voluntary Overpayments Risk: Making voluntary extra repayments to clear a Plan 2 or Plan 5 loan early is usually financially unadvisable for most graduates. Because unpaid balances are cancelled after 30 to 40 years, overpaying cash that will eventually be written off wastes personal savings.
- Self Assessment Unearned Income Trap: If you file a Self Assessment tax return and earn more than £2,000 in unearned income (such as dividends or rental profits), student loan repayments apply to your total combined income.
❓ Frequently Asked Questions (FAQ)
Plan 1 loans are written off at age 65 or 25 years after repayment started. Plan 2 loans are written off 30 years after graduation. Plan 5 loans are written off 40 years after graduation.
Student loans do not appear on your credit file. However, mortgage lenders factor monthly student loan PAYE deductions into affordability calculations as a reduction in net take-home salary.
If your annual income was below the threshold but you had deductions taken during bonus months, you can request a 100% refund from the Student Loans Company online or by telephone.
If you move overseas for more than 3 months, you MUST notify the Student Loans Company and complete an Overseas Income Assessment form. SLC assigns an overseas repayment threshold based on local cost of living.