If you took out a student loan in England or Wales after September 2012, you are on Plan 2. Repayments are deducted from your pay once you earn above the threshold, and the amount appears on your payslip alongside tax and National Insurance. This guide explains how the deduction is calculated and how to check it is correct.
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How Plan 2 repayments work
Student loan repayments are collected through the PAYE system, just like income tax. Your employer deducts the repayment from your gross pay each pay period and sends it to the Student Loans Company (SLC) via HMRC.
The key rules for Plan 2:
- Repayment threshold: £27,295 per year (subject to annual review)
- Repayment rate: 9% of earnings above the threshold
- Calculation basis: per pay period, not cumulative (unlike income tax)
HMRC tells your employer to start deducting repayments by issuing an SL2 notice. This usually happens automatically once HMRC's records show you are earning above the threshold.
Current thresholds
Student loan repayment thresholds are reviewed annually. For the current tax year, the approximate thresholds are:
| Plan | Annual threshold | Monthly equivalent | Weekly equivalent |
|---|---|---|---|
| Plan 1 | £24,990 | £2,082.50 | £480.58 |
| Plan 2 | £27,295 | £2,274.58 | £524.90 |
| Plan 4 | £31,395 | £2,616.25 | £603.75 |
| Plan 5 | £25,000 | £2,083.33 | £480.77 |
| Postgraduate | £21,000 | £1,750.00 | £403.85 |
Check gov.uk for the exact current-year figures, as these are subject to change each April.
Worked example
You earn £30,000 per year, paid monthly, on Plan 2.
- Monthly gross pay: £30,000 / 12 = £2,500.00
- Monthly threshold: £27,295 / 12 = £2,274.58
- Earnings above threshold: £2,500.00 - £2,274.58 = £225.42
- Monthly repayment: £225.42 x 0.09 = £20.29
Your payslip should show approximately £20 in student loan deductions for the month. The figure is rounded down to the nearest pound in practice.
Student loan repayments are not a tax. They do not reduce your taxable income, and they are calculated independently of your tax code. The deduction appears as a separate line on your payslip.
Checking the deduction on your payslip
To verify your student loan deduction:
- Find your gross pay for the period
- Subtract the monthly threshold (divide the annual threshold by 12)
- Multiply the result by 0.09
- Round down to the nearest pound
If the figure on your payslip is significantly different, check that your employer is using the correct plan type. A common error is being placed on Plan 1 instead of Plan 2 (or vice versa), which uses a different threshold.
You can also check your loan balance and repayment history through your SLC online account.
What if you have both a Plan 2 loan and a Postgraduate Loan?
If you have both types of loan, repayments are calculated and deducted separately. You pay 9% above the Plan 2 threshold and 6% above the Postgraduate Loan threshold. The two deductions are independent, so you could be repaying both in the same pay period.
Your payslip should show each deduction on a separate line. If it shows only one combined figure, it can be worth asking your payroll department to confirm both are being calculated correctly.
A common mistake is continuing to repay after your loan is fully paid off. The SLC should notify HMRC to stop deductions, but there can be a delay of one or two months. If you know your loan is close to being repaid, check your SLC account and contact them to arrange a switch to direct debit for the final payments, which avoids overpayment through payroll.
When repayments stop
Plan 2 loans are written off 30 years after the April following your graduation. If you have not repaid the full balance by then, the remaining amount is cancelled. Repayments also stop if your earnings fall below the threshold in any pay period.
If you leave the UK, you are still required to make repayments to the SLC based on your overseas income. The SLC will contact you to arrange this.
Frequently Asked Questions
How do I know which student loan plan I am on?
If you started your course in England or Wales after September 2012, you are on Plan 2. If you started before that date, you are on Plan 1. Scottish students are on Plan 4. You can confirm your plan type through your SLC online account.
Can I make extra repayments to pay off my loan faster?
Yes. You can make voluntary overpayments directly to the SLC at any time. These are separate from the payroll deductions and reduce your outstanding balance. Whether this is financially worthwhile depends on the interest rate on your loan and your other financial priorities.
Why is my student loan deduction higher than I calculated?
Check whether your employer is using the correct plan type and threshold. Also check whether you received any additional pay (bonus, overtime) that increased your gross for the period. If the deduction is still wrong, raise it with your payroll department.
Will my student loan affect my mortgage application?
Lenders consider student loan repayments when assessing affordability, as they reduce your disposable income. However, they are generally treated as a standard deduction rather than a debt in the traditional sense. The impact varies by lender.
What happens if I overpay my student loan through payroll?
If deductions continue after your loan is fully repaid, the SLC will refund the overpayment directly to you. This can take several weeks. To avoid this, contact the SLC when your balance is close to zero and switch to direct debit for the final payments.
Sources
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