Student Loan Repayment

How Student Loans Reduce Your Take Home Pay

Student loan repayments are deducted from your salary through PAYE once you earn above the repayment threshold for your plan. Unlike income tax, repayments are calculated on total earnings above the threshold, not on bands. The rate is 9% for undergraduate loans (Plans 1-5) and 6% for postgraduate loans.

For example, on a £35,000 salary with a Plan 2 loan (threshold £27,295), you repay 9% of £7,705 = £693 per year, or £58 per month. Multiple plans can apply simultaneously. Outstanding balances are written off after 25-40 years depending on your plan.

Student loan repayments are not technically a tax, but they reduce your take home pay in exactly the same way. Use our student loan calculator to see the impact on your specific salary.

How Student Loan Works in Practice

Student loan repayments are collected through PAYE at 9% of income above the relevant threshold. Plan 1 (pre-2012): threshold £22,015/year. Plan 2 (2012-2023): threshold £27,295/year. Plan 5 (2023 onwards): threshold £25,000/year. Postgraduate loans are repaid at 6% above £21,000. Loans are written off after 25 years (Plan 1), 30 years (Plan 2), or 40 years (Plan 5).

Practical Tips

Student loan repayments are automatic through PAYE — you do not need to set up direct debits or make manual payments while employed. If you have both an undergraduate and postgraduate loan, you repay both simultaneously (9% + 6% = 15% above the respective thresholds). Voluntary overpayments are rarely beneficial unless you are confident you will repay in full. See student loan calculator.

Related Topics

Student loans do not appear on your credit report and do not affect mortgage applications directly. However, lenders do consider the reduced take home pay when calculating affordability. See student loan repayments by salary.