How Student Loan Repayments Work
Student loan repayments in England and Wales are income-contingent — you only repay when you earn above a certain threshold, and the amount is based on a percentage of your earnings above that threshold. If your income drops below the threshold, your repayments stop automatically.
Repayments are deducted from your salary through PAYE (like tax and NI), or through Self Assessment if you're self-employed.
The Key Principle
You repay a fixed percentage of earnings above your threshold, not a percentage of your total salary. On a £30,000 salary with a £25,000 threshold, you'd repay 9% of £5,000 = £450/year, not 9% of £30,000.
Student Loan Plan Types
Plan 1
Who has it: Students who started undergraduate courses in England/Wales before September 2012, or in Northern Ireland.
- Repayment threshold: £24,990 per year (2025/26)
- Repayment rate: 9% of earnings above the threshold
- Interest rate: Whichever is lower: RPI or Bank of England base rate + 1%
- Written off: 25 years after the April you were first eligible to repay, or when you turn 65
Plan 2
Who has it: Students who started undergraduate courses in England/Wales from September 2012 onwards (before 2023).
- Repayment threshold: £27,295 per year (2025/26)
- Repayment rate: 9% of earnings above the threshold
- Interest rate: RPI + up to 3% depending on income
- Written off: 30 years after the April you were first eligible to repay
Plan 5
Who has it: Students who started undergraduate courses in England from September 2023 onwards.
- Repayment threshold: £25,000 per year (2025/26)
- Repayment rate: 9% of earnings above the threshold
- Interest rate: RPI only (no additional margin)
- Written off: 40 years after the April you were first eligible to repay
Postgraduate Loan (Plan 3)
Who has it: Students who took out a postgraduate master's or doctoral loan from 2016/17 onwards.
- Repayment threshold: £21,000 per year (2025/26)
- Repayment rate: 6% of earnings above the threshold
- Interest rate: RPI + 3%
- Written off: 30 years after the April you were first eligible to repay
Multiple Loans?
If you have both an undergraduate and a postgraduate loan, you'll repay both simultaneously — 9% for your undergraduate plan plus 6% for your postgraduate loan, on the respective amounts above each threshold. This can add up to a significant monthly deduction.
Repayment Thresholds at a Glance (2025/26)
| Plan | Annual Threshold | Monthly Threshold | Rate |
|---|---|---|---|
| Plan 1 | £24,990 | £2,082 | 9% |
| Plan 2 | £27,295 | £2,274 | 9% |
| Plan 5 | £25,000 | £2,083 | 9% |
| Postgraduate | £21,000 | £1,750 | 6% |
Worked Examples
Plan 2 on a £30,000 Salary
- Earnings above threshold: £30,000 - £27,295 = £2,705
- Annual repayment: £2,705 x 9% = £243.45
- Monthly deduction: £20.29
Plan 2 + Postgraduate on a £40,000 Salary
- Undergraduate (Plan 2): (£40,000 - £27,295) x 9% = £1,143.45/year
- Postgraduate: (£40,000 - £21,000) x 6% = £1,140.00/year
- Total annual repayment: £2,283.45
- Monthly deduction: £190.29
Should You Overpay Your Student Loan?
This is one of the most common personal finance questions for graduates. The answer depends on your plan type and likely earnings:
Probably Don't Overpay If:
- You won't repay in full before it's written off — most Plan 2 borrowers won't repay their full balance. If the loan gets written off, any overpayments were wasted
- Your salary is under £50,000 — at typical Plan 2 balances (£40,000-£60,000), you'd need to earn well above average to repay in full within 30 years
- Interest rates are lower than savings rates — if you can earn more in a savings account, keep your money there
Consider Overpaying If:
- You're on Plan 1 — lower balances and lower thresholds mean you're more likely to repay in full
- You're a high earner — if you'll definitely repay in full, overpaying saves on interest
- You're close to paying it off — if you have a small balance remaining, clear it to stop deductions
Think of It as a Graduate Tax
For most Plan 2 borrowers, it's more helpful to think of student loan repayments as an additional 9% tax on earnings above the threshold, rather than a traditional debt. The balance doesn't matter if you'll never repay it in full — what matters is the monthly deduction from your pay.
How Repayments Affect Your Take-Home Pay
Here's how much student loan repayments reduce your monthly take-home pay at different salary levels (Plan 2):
| Annual Salary | Monthly Repayment | Annual Repayment |
|---|---|---|
| £27,295 or below | £0 | £0 |
| £30,000 | £20 | £243 |
| £35,000 | £58 | £693 |
| £40,000 | £95 | £1,143 |
| £50,000 | £170 | £2,043 |
| £60,000 | £245 | £2,943 |
What Happens When It's Written Off?
Any outstanding balance is cancelled after the write-off period for your plan. You don't need to do anything — the Student Loans Company (SLC) handles it automatically. The written-off amount is not treated as income and you won't pay tax on it.
Common Mistakes to Avoid
- Not checking your plan type — make sure your employer has the right plan on your payroll
- Overpaying when you won't repay in full — check whether overpaying actually makes sense for your situation
- Continuing to repay after the loan is cleared — if you've fully repaid, contact SLC to stop deductions. It can take a few months to process
- Ignoring your SLC account — log in annually to check your balance and ensure your details are correct
The Bottom Line
Student loan repayments are designed to be manageable — you only pay when you earn enough, and the balance is written off eventually. For most graduates, the best approach is to treat it as a payroll deduction and focus on other financial priorities like building an emergency fund and contributing to a pension.
If you're a higher earner who will likely repay in full, it may be worth exploring overpayments to save on interest. But for the majority of borrowers, the money is better used elsewhere.
Use our income tax calculator to see your full take-home pay including student loan deductions.