Student Loan Repayments: How They Affect Your Take-Home Pay
Student loan repayments are deducted from your salary at 9% of earnings above a specific threshold — the threshold depends on which repayment plan you're on. On Plan 2, you pay 9% on everything above £27,295. On Plan 1, it's above £24,990. Plan 5 graduates owe 9% above £25,000. Unlike a tax, student loan repayments come out of your gross pay before income tax is calculated, which means they reduce both your student loan liability and your taxable income. This guide shows you exactly how much student loan repayments affect your monthly income, with real numbers and worked examples.
Understanding Student Loan Plans
When you took out your student loan, you were assigned to one of three repayment plans depending on when you started university. Which plan you're on matters — it changes the threshold at which repayment kicks in, and it affects how long you repay.
Plan 1 applies to students who started their course before 1 September 2012 (mostly part-time students and graduates from England who studied before the fees trebled). You pay 9% of earnings above £24,990 per year.
Plan 2 applies to students who started full-time courses from 1 September 2012 onwards. Most UK graduates are on Plan 2. You pay 9% of earnings above £27,295 per year (as of the 2025/26 tax year).
Plan 5 is for Scottish-domiciled students who started before 2 August 2025. You pay 9% above £25,000.
The key number is the threshold. Earn below it, and you pay nothing. Cross it, and 9% of every pound above it goes to repaying the loan. Because these thresholds are so close to the personal tax allowance of £12,570, many people find their student loan repayment and income tax are calculated on similar income bands — but they're separate deductions.
How Student Loan Repayments Are Calculated
The maths is straightforward: (Annual salary – threshold) × 9% ÷ 12 = monthly repayment.
Let's say you're on Plan 2 and earn £35,000 per year.
- Your threshold is £27,295
- Income above threshold: £35,000 – £27,295 = £7,705
- Annual repayment: £7,705 × 9% = £693.45
- Monthly deduction: £693.45 ÷ 12 = £57.79
That £57.79 comes out of every monthly payslip. Your employer deducts it along with income tax and National Insurance, and it goes to the Student Loans Company.
The important bit: student loan repayment is worked out on your gross income (your salary before any deductions), but it is a deduction that reduces your taxable income. So if you earn £35,000, your student loan is calculated on £35,000, but your income tax is calculated on £35,000 minus any repayment you make — slightly. Actually, no: student loan repayment doesn't reduce the income tax calculation. Income tax is calculated on your gross salary, then student loan is deducted. So in the example above, you'd pay income tax on the full £35,000, then separately pay £57.79 a month in student loan repayment.
Real-World Examples
Example 1: Graduate on Plan 2, earning £28,000
- Salary: £28,000
- Income above Plan 2 threshold (£27,295): £705
- Annual student loan repayment: £705 × 9% = £63.45
- Monthly deduction: £5.29
That's barely noticeable — less than a coffee a week.
Example 2: Graduate on Plan 2, earning £40,000
- Salary: £40,000
- Income above threshold: £40,000 – £27,295 = £12,705
- Annual student loan repayment: £12,705 × 9% = £1,143.45
- Monthly deduction: £95.29
Example 3: Early-career graduate on Plan 1, earning £32,000
- Salary: £32,000
- Income above Plan 1 threshold (£24,990): £7,010
- Annual student loan repayment: £7,010 × 9% = £630.90
- Monthly deduction: £52.58
The difference between Plan 1 and Plan 2 is small in pounds, but notice it compounds over your career. If you stay on Plan 2 and your salary grows, you'll always repay 9% of earnings above £27,295. On Plan 1, that threshold is £24,990 — a lower bar means you start repaying sooner.
How It Affects Your Take-Home Pay
Your take-home pay is reduced by three main deductions: income tax, National Insurance, and student loan repayment. If you're earning £40,000 on Plan 2:
- Gross salary: £40,000
- Income tax (basic rate, with personal allowance): –£5,486
- National Insurance (employee): –£4,308
- Student loan repayment (9% above £27,295): –£1,143
- Take-home: £28,963 (72% of gross)
The student loan is roughly 3% of your gross income in this scenario. It's smaller than income tax or National Insurance, but it still stings.
What many people don't realise is that student loan repayment is separate from tax relief. If you're a higher-rate taxpayer (earning over £50,270), you don't get any special relief on the student loan — you still pay the full 9%. That's different from pensions, where higher-rate taxpayers get 40% relief on contributions. Student loans hit everyone at the same rate.
One dry observation: there are two ways to feel about student loan repayment. One is "it's only 9%, that's not too bad." The other is "I'll be paying this off until I'm in my 50s." Both are correct — the £27,295 threshold hasn't risen in line with inflation, which means more graduates cross it each year, and with a 30-year repayment term, the maths is ... substantial.
Student Loans vs. Other Deductions
Student loan repayment sits alongside two other automatic salary deductions: income tax and National Insurance. It's worth understanding how they fit together.
Income tax is calculated on your gross salary minus your personal allowance (£12,570 in 2025/26). You pay 20% on the band from £12,571 to £50,270 if you're a basic-rate taxpayer. Student loan repayment doesn't reduce the amount of income tax you owe — it's calculated separately.
National Insurance is an employment tax separate from income tax. Employees pay 8% on earnings between £12,570 and the upper earnings limit. Again, student loan repayment doesn't affect National Insurance.
Student loan repayment is the only one of the three that has a threshold (£27,295 on Plan 2). Below that, you owe nothing. Above it, you owe 9% of the overage.
If you're self-employed or run a business, you won't have student loan repayment deducted from your payslip — instead, you report it through self-assessment tax returns. The repayment obligation is the same, but the mechanics are different. See our guides on calculating Class 2 and Class 4 National Insurance and tax-free allowances for more detail.
If you're paying tax-free savings like an ISA or pension contributions, these do reduce your income tax bill (because pensions get tax relief), but they don't reduce student loan repayment — you still owe 9% of earnings above the threshold. That's why it's important to understand that student loan repayment is calculated on gross income, not net income after other deductions.
Frequently Asked Questions
Q: If I earn £27,294, do I owe student loan repayment? A: No. Student loan repayment is only on earnings above the threshold. If you're on Plan 2 and earn £27,294, you owe nothing. The moment you cross £27,295, you owe 9% of the overage — so at £27,295.01, you'd owe roughly £0.00 (less than a penny a month). It's a hard threshold; there's no phase-in.
Q: Does student loan repayment get refunded if I overpay? A: Not directly. The Student Loans Company calculates repayment based on your income each year. If you end the tax year having paid more than you owed (e.g., you worked 10 months instead of 12), you can claim a refund from the SLC. Contact them with evidence of your earnings. Overpayments aren't automatic — you have to ask.
Q: What if I'm on a zero-hours contract and my income varies month to month? A: Your student loan repayment is based on your annual income, not your monthly income. If you're employed, PAYE repayment is calculated roughly each month based on your payslip, but the SLC can adjust it if your earnings were lower on average than expected. If you're self-employed, you report your actual income on your tax return and settle the repayment in full each year. Keep records of your earnings month-by-month so you can explain variations.
Q: If I'm on maternity leave or unpaid leave, do I still owe student loan repayment? A: Only if you're earning above the threshold. If your income drops because you're on unpaid leave, your repayment adjusts accordingly. Check with your employer — they should adjust your PAYE code to reflect the leave. If you've already paid repayment on the higher salary and then took unpaid leave, you can claim a refund from the SLC for the period you weren't earning.
Q: Does my student loan repayment affect my credit score? A: No, it doesn't appear on your credit report. It's not a loan that you're repaying through conventional credit; it's a repayment obligation from HMRC / the SLC. However, if you miss payments or refuse to pay, that can end up on your credit file as a HMRC debt. Keep up with repayments and you're fine.
Q: Can I pay extra to clear my student loan faster? A: Yes, you can make voluntary payments to the Student Loans Company. This reduces the balance and can shorten the repayment term. However, check the terms of your specific plan — some plans have early repayment penalties, and some don't. Plan 2 doesn't have early repayment penalties, so extra payments are usually worthwhile if you can afford them.
Q: If I move abroad, do I still owe student loan repayment? A: It depends on where you move and your residency status. If you remain UK-resident for tax purposes, you continue to repay. If you become a non-resident, you may still owe repayment if you're earning from a UK source. The rules are complex — contact the SLC or a tax advisor before you move.
Q: Does student loan repayment affect my ability to get a mortgage? A: Lenders usually ignore student loan repayment when calculating your debt-to-income ratio for a mortgage, because the repayment is income-contingent — if your income drops, your repayment drops. However, some lenders do factor it in as an outgoing. Always check with a lender directly, and keep a clear record of your repayments if you're applying for a mortgage.
Take Control of Your Numbers
Student loan repayment is a fixed 9% of earnings above a threshold — not complex, but substantial over decades. Use our salary calculator to see your exact monthly repayment, alongside tax and National Insurance. If you want to understand how different salary levels affect your take-home, play with the calculator — it's free, no sign-up needed.
Understanding the structure also helps with planning. If you're self-employed or considering a career change, knowing that the threshold is fixed (£27,295 on Plan 2) and hasn't risen in line with inflation means you can forecast your repayment accurately. And if you find yourself near the threshold — say, earning £27,000 — a small pay rise can feel like it goes entirely to student loan and tax. That's true, but it's also true that every pound you earn above the threshold is building equity in your own financial security. Use our tax guides on tax-free allowances and working from home tax relief to see if there are legitimate ways to reduce your taxable income and, indirectly, any other income-contingent repayments.