Student loans are one of the most misunderstood parts of the UK tax system. Many people aren’t sure when they need to start repaying, how much they’ll owe, or how repayments affect their take-home pay, especially if they’re self-employed or earning more than one income.
In this guide, Clayton Stirling & Co explains how UK student loan repayments work, how they’re collected, and what you should look out for to avoid overpaying.
How Do Student Loan Repayments Work in the UK?
Student loans in the UK are not repaid like normal loans. Instead, repayments are based on your income, not how much you borrowed.
Repayments are collected by the Student Loans Company and usually deducted automatically through PAYE or Self Assessment.
You only start repaying once your income goes above a repayment threshold, which depends on your loan plan.
Student Loan Repayment Thresholds (Explained Simply)
Different student loan plans have different repayment rules. In general:
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You repay 9% of income above the threshold
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Repayments stop automatically if your income drops
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Any remaining balance may be written off after a set period
Importantly, repayments are calculated on gross income, not take-home pay.
Example: Student Loan Repayments If You Earn £30,000
Let’s assume you have a Plan 2 student loan (most people who started university in England after 2012).
Step 1: Know the Repayment Threshold
For Plan 2 loans, repayments only start once you earn over £27,295 per year.
Step 2: Work Out the Repayable Income
Your salary: £30,000
Repayment threshold: £27,295
£30,000 − £27,295 = £2,705
This £2,705 is the amount your student loan repayment is based on.
How Student Loans Affect Your Payslip
If you’re employed, student loan repayments are usually deducted automatically alongside:
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Income Tax
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National Insurance
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Pension contributions
This means your student loan repayment is effectively treated like an additional tax, reducing your net monthly income.
Many employees don’t notice how much they’re repaying until they review their payslips more closely.
There’s been a lot of talk about students loads recently, many people feel they have been missold their loads since the interest rate is so high, you can read more about it here https://www.bbc.co.uk/news/articles/ce3k4xdqyp1o.
Student Loans and Self-Employed Individuals
If you’re self-employed, student loan repayments are handled differently.
Instead of monthly deductions, repayments are calculated and collected through your Self Assessment tax return and paid alongside your tax bill in January (and sometimes July).
This often catches people out, as student loan repayments can significantly increase the amount due — particularly in your first profitable year.
Multiple Jobs or Mixed Income? Watch Out
If you have:
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More than one job
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Employment and self-employment income
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Freelance or side-hustle income
…your student loan repayment may not be fully captured through PAYE alone.
In these cases, additional repayments may be calculated via Self Assessment, even if deductions are already being taken from your salary.
This is one of the most common reasons people receive unexpected bills from HMRC.
Common Student Loan Mistakes
Some of the most common issues we see include:
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Overpaying after the loan should have stopped
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Not realising repayments apply to bonuses or commissions
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Forgetting repayments apply to self-employed profits
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Assuming repayments are capped monthly (they’re not)
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Not informing HMRC when a loan has been fully repaid
These mistakes can cost hundreds, sometimes thousands, over time. Get in touch with Clayton Stirling & Co for help with your student loads.
Can You Reduce Student Loan Repayments?
Unlike tax, student loan repayments are not easily reduced through expenses or allowances. However, good financial planning can help you:
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Understand whether voluntary repayments make sense
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Avoid unnecessary overpayments
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Plan cash flow if you’re self-employed
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Factor repayments into salary and dividend planning
This is particularly important for directors of limited companies and higher earners.
Do Student Loans Ever Get Written Off?
Yes — most UK student loans are written off after a set number of years, depending on the loan plan and when you started studying. You can read more about this on the HMRC website.
If your income never exceeds the repayment threshold for long periods, you may repay far less than you borrowed, or even nothing at all.
This is why student loans are often described as a graduate contribution, rather than traditional debt.
Final Thoughts: Get Clarity on Student Loan Repayments
Student loans don’t work like credit cards or bank loans, and misunderstanding how they interact with tax and income can lead to confusion and unexpected bills.
Whether you’re employed, self-employed, or running a limited company, understanding how student loan repayments fit into your wider financial picture is essential.
Clayton Stirling & Co helps individuals and business owners understand their obligations, avoid overpayments, and plan confidently for the future. If you’re unsure whether your student loan repayments are correct, professional advice can provide clarity, and peace of mind.
