Published: September 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 UK tax year. All calculations, tax bands, and payroll rules are audited against active HMRC manuals and ONS ASHE datasets.
For millions of UK graduates, student loan repayments operate as an effective graduate tax collected automatically through the HMRC Pay As You Earn (PAYE) payroll system. Depending on when you started university, which UK nation you studied in, and whether you completed undergraduate or postgraduate studies, your repayments are governed by Plan 1, Plan 2, Plan 4, Plan 5, or Postgraduate Loan rules for the 2026/27 tax year.
1. UK Student Loan Repayment Plans & Thresholds (2026/27)
Student loan repayments are calculated at a fixed percentage of your earnings above statutory annual thresholds. If your earnings fall below the threshold, your monthly repayment is £0:
| Repayment Plan | Who is on this Plan? | Repayment Threshold (2026/27) | Repayment Rate Above Threshold | Write-Off Period |
|---|---|---|---|---|
| Plan 1 | English/Welsh students (1998–2011) & Northern Irish students. | £24,990 / year (£2,082.50/mo) | 9% | Age 65 or 25 years after graduation |
| Plan 2 | English/Welsh students (2012–July 2023). | £27,295 / year (£2,274.58/mo) | 9% | 30 years after graduation |
| Plan 4 | Scottish students studying anywhere in the UK. | £31,395 / year (£2,616.25/mo) | 9% | 30 years or age 65 |
| Plan 5 | English students starting courses from August 2023 onwards. | £25,000 / year (£2,083.33/mo) | 9% | 40 years after graduation |
| Postgraduate | Master’s & Doctoral loan recipients (England & Wales). | £21,000 / year (£1,750.00/mo) | 6% | 30 years after graduation |
You can model your exact monthly deductions and total loan write-off timelines using our Student Loan Repayment Calculator.
2. Combined Marginal Tax Rates for Graduates
Because student loan deductions stack on top of standard UK income tax and National Insurance, UK graduates face exceptionally high marginal deduction rates:
| Salary Tier | Standard Employee Marginal Rate | Plan 2 Graduate (+9%) | Plan 2 + Postgraduate (+15%) |
|---|---|---|---|
| Basic Rate (£12.57k–£50.27k) | 28% (20% IT + 8% NI) | 37% Marginal Rate | 43% Marginal Rate |
| Higher Rate (£50.27k–£100k) | 42% (40% IT + 2% NI) | 51% Marginal Rate | 57% Marginal Rate |
| 60% Tax Trap (£100k–£125k) | 62% (60% IT + 2% NI) | 71% Marginal Rate | 77% Marginal Rate |
3. Step-by-Step Calculation: £40,000 Salary on Plan 2
Let us calculate the annual and monthly student loan repayment for an employee earning £40,000 per year on Plan 2:
- Gross Annual Salary: £40,000.00
- Plan 2 Statutory Threshold: £27,295.00
- Income Subject to Repayment: £40,000.00 – £27,295.00 = £12,705.00
- Annual Student Loan Deduction (9%): £12,705.00 × 0.09 = £1,143.45 per year
- Monthly Deduction on Payslip: £1,143.45 / 12 = £95.29 per month
4. Should You Pay Off Your Student Loan Early?
For most Plan 2 graduates, making voluntary extra repayments is a severe financial mistake. Government forecasts indicate that over 70% of Plan 2 graduates will never repay their full loan balance before it is automatically cancelled and written off after 30 years. Any voluntary extra cash paid is simply lost.
6. Plan 5 Deep Dive: The New 40-Year Loan System
For students starting university in England from August 2023 onwards, the government introduced Plan 5, which significantly alters loan economics:
- Lower Repayment Threshold: Fixed at £25,000 through 2027, pulling graduates into repayments at lower earnings tiers.
- 40-Year Write-Off Window: Extended from 30 years to 40 years post-graduation, meaning most graduates will make repayments for the entirety of their working lives.
- Inflation-Linked Interest (RPI Only): Interest is capped strictly at RPI inflation (no real +3% interest premium), preventing runaway debt balances.
7. How to Reclaim Overtaxed Student Loan Deductions
Because PAYE calculates student loan deductions on a weekly or monthly basis, if your earnings fluctuate (e.g. you receive a bonus or work extra shifts in summer) but your total annual income falls below the statutory threshold (£27,295 for Plan 2), you are legally entitled to a 100% refund of all deducted loan payments. Log into your Student Loans Company (SLC) online portal after 5 April to request an automatic refund.
5. Frequently Asked Questions (FAQ)
Q: Does student loan debt affect my credit score or mortgage application?
A: Student loans do not appear on your credit report. However, mortgage lenders factor your monthly student loan deductions into their debt-to-income affordability calculations.
Q: What happens to my student loan if I lose my job or take a career break?
A: If your earnings drop below the annual threshold (£27,295 for Plan 2), your repayments automatically stop immediately.
Q: Can I hold both an undergraduate and postgraduate loan simultaneously?
A: Yes. If you have both Plan 2 and a Postgraduate loan, you pay 9% for Plan 2 + 6% for Postgraduate = 15% total student loan deduction on earnings above thresholds.
Q: How does salary sacrifice affect student loan repayments?
A: Salary sacrifice reduces your gross pay subject to National Insurance, which directly lowers your student loan repayments each pay period.
Q: What happens to unpaid student loan balances upon death?
A: If a borrower passes away or becomes permanently disabled and unfit for work, HMRC cancels the loan balance entirely with zero liability passed to their estate or family.
Q: How do self-employed sole traders repay student loans?
A: Self-employed graduates repay student loans through their annual Self Assessment tax return based on total taxable profits above thresholds.
Q: When is a Plan 2 loan written off?
A: Plan 2 loans are cancelled 30 years after the April you first became eligible to repay (the April after graduation).
Q: Can I claim a refund if I overpaid student loans due to a bonus?
A: If your total annual earnings were below the threshold but you had deductions in a bonus month, you can request a full refund directly from the Student Loans Company (SLC) after the tax year ends.
Q: How do student loan repayments work for UK citizens moving abroad?
A: If you move abroad for more than 3 months, you must notify the Student Loans Company (SLC) and complete an Overseas Income Assessment form. SLC sets country-specific repayment thresholds based on local price level indices.
Q: Can HMRC take student loan repayments from savings interest or dividends?
A: If you file a Self Assessment return and your unearned income (dividends, rental profits, savings interest) exceeds £2,000 per year, HMRC includes your unearned income when calculating your annual 9% student loan repayment.
Calculate Your Student Loan Deductions
Put the figures from this guide into practice with our free, HMRC-audited interactive calculation tools: