Student Loan & Tax: How Repayments Work With PAYE (2025-26)
Student loan repayments in the UK are collected automatically through PAYE — the same system used to deduct income tax and National Insurance. They appear on your payslip as a separate deduction and are not optional once you cross the relevant income threshold. For most graduates who started university after 2012, Plan 2 rules apply.
Plan 2 thresholds and rates (2025-26)
- Repayment threshold: £27,295/year (£2,274/month, £524/week)
- Repayment rate: 9% on earnings above the threshold
- Write-off: 30 years after you entered repayment (or if you reach age 65, die, or become permanently disabled)
Example: on a salary of £35,000, your repayments are 9% of (£35,000 minus £27,295) = 9% of £7,705 = £693/year or approximately £58/month.
How it appears on your payslip
Your employer deducts student loan repayments through PAYE after calculating income tax and NI. Your payslip will show a separate line labelled "Student Loan Deduction." This deduction is made before you receive your net pay and is non-optional — you cannot ask your employer to stop it while your income is above the threshold.
Your true effective tax rate with student loans
When calculating your effective deduction rate, it is important to include student loan repayments alongside income tax and NI. For a Plan 2 borrower earning £35,000 in 2025-26 (England):
| Deduction | Annual amount | Effective rate on gross |
|---|---|---|
| Income tax | ~£4,486 | 12.8% |
| National Insurance | ~£1,787 | 5.1% |
| Student loan (Plan 2) | £693 | 2.0% |
| Total deductions | ~£6,966 | 19.9% |
Plan 1, Plan 4, Plan 5, and Postgraduate differences
- Plan 1 (pre-2012 English/Welsh students): threshold £24,990, rate 9%
- Plan 4 (Scottish students): threshold £31,395, rate 9%
- Plan 5 (students starting from 2023 in England): threshold £25,000, rate 9%, 40-year write-off
- Postgraduate Loan: threshold £21,000, rate 6%
Frequently asked questions
Can I make voluntary overpayments to clear my loan faster?
Yes, but it is rarely financially optimal. If you are unlikely to clear the balance within the write-off period, overpaying simply reduces the amount written off at the end. The loan carries an interest rate tied to RPI or a fixed cap — compare this against what you would earn investing the same money.
Does my student loan affect my credit rating?
No. Student loans are not recorded on your credit file and do not affect mortgage applications in the traditional sense — although the monthly repayment reduces your take-home pay, which lenders consider when assessing affordability.