Employee Student Loan Repayment UK: A New Employee's Guide (2026/27)
You got your first payslip. You were expecting a certain amount, and the number you got is lower than you planned. There is a line on there that says “student loan.” Nobody told you it would start so soon. Nobody explained how much it would be. And nobody warned you that it works nothing like a normal loan repayment.
That confusion is completely normal. Most new employees have no idea how student loan repayment works until they see that first deduction and start panicking. Some people spend months assuming their employer made an error. Others Google it at midnight and end up more confused than when they started.
This guide breaks it all down. You will know exactly why deductions started, how much you should be paying, what affects that number, and what to do if something looks wrong. Our student loan repayment calculator on this site lets you check your exact monthly figure in seconds once you know which plan you are on.
Can Your Employer Pay Your Student Loan For You?
This question comes up a lot as a new employee, especially in sectors like law, finance, and tech, where employers offer competitive benefit packages. The short answer is yes, UK employers can choose to pay toward an employee’s student loan as part of a compensation arrangement. This is sometimes described as a student loan repayment employee benefit or an employee student loan repayment program.
The catch is the tax treatment. In the UK, there is no tax-free wrapper for employer student loan payments. When your employer pays your student loan directly, HMRC treats it as them meeting your personal financial liability. That amount is classed as earnings under UK employment tax law, which means it is subject to income tax and National Insurance, for both you and your employer.
In practice, most employers who offer this structure offer it as additional gross salary paid alongside your regular pay, which you then use to make repayments. Some negotiate it as a contractual benefit tied to length of service or hitting performance targets.
If your employer offers student loan repayment benefits for employees, ask specifically how it is structured. Is it paid as salary? Is tax accounted for? What are the conditions attached? Getting clarity on this upfront means no surprises at the end of the tax year.
If your employer is deducting the wrong amount, you need to verify your tier by understanding how to check your student loan balance and your loan plan type.
Why the Deduction Started Without You Doing Anything
This is the first thing most new employees want to know. You never called anyone. You never set up a payment. So why is money coming out?
Student loan repayment in the UK runs through the PAYE system. That stands for Pay As You Earn, which is the same system your employer uses to collect income tax and National Insurance from your wages. When you are an employee, your employer handles the deduction automatically, sends it to HMRC, and HMRC passes it to the Student Loans Company.
You never touch the money. It comes off before your pay lands in your account. Employees who have completed a Master’s degree will notice an additional 6% taken for their postgraduate loan repayment.
Here is how the process actually starts. When you finish or leave your course, the Student Loans Company notifies HMRC. HMRC then tells your employer to begin deducting repayments. This instruction is called a start notice. Your employer does not know how much you owe in total. They only know your plan type and the threshold for that plan.
When you started your job, your employer asked you to fill in a new starter checklist. There was a question about whether you have a student loan. If you ticked yes and gave the correct plan type, your employer set up the deduction correctly. If you left it blank or got the plan wrong, your deductions may be set up incorrectly, and that is worth fixing.
How Your Monthly Repayment Is Calculated
This trips up a lot of new employees. The repayment is not based on how much you borrowed. It does not matter if you borrowed £30,000 or £60,000. Two people with the same salary and the same plan pay exactly the same monthly amount, regardless of their total debt.
Example A: Salary of £28,000 per year
Monthly gross pay: £2,333.33 Monthly threshold: £2,448.75 Pay is below the threshold. Deduction this month: £0.
Example B: Salary of £35,000 per year
Monthly gross pay: £2,916.67 £2,916.67 minus £2,448.75 = £467.92 9% of £467.92 = £42.11 deducted this month.
Example C: Salary of £50,000 per year
Monthly gross pay: £4,166.67 £4,166.67 minus £2,448.75 = £1,717.92 9% of £1,717.92 = £154.61 deducted this month.
(Gross pay for that pay period minus the threshold for that period) x 9% = deduction
Your gross pay is your salary before tax, National Insurance, or pension contributions come off. The threshold is divided by how often you get paid. Monthly paid employees divide the annual threshold by 12. Weekly paid employees divided by 52.
What Counts as Your Earnings for Student Loan Purposes
This matters more than most people realise. Earnings for student loan repayment are calculated the same way as Class 1 National Insurance. That is not always the same figure as your taxable income for income tax.
What is included:
- Your basic salary
- Bonuses
- Overtime pay
- Commission
What is generally not included:
- Benefits in kind, like a company car or private health insurance, attract a different type of National Insurance (Class 1A) and do not count toward your student loan earnings figure
- Tips, in many cases
- Employer loans made to you
There is also an important point about pension contributions. If you pay into a workplace pension through your payroll, those contributions reduce your income tax and your National Insurance in most schemes. They do not reduce the earnings figure used to calculate your student loan deduction. The deduction is calculated on your gross pay before pension contributions come off.
It is vital to check your payslips, especially if you are repaying more than one student loan, to ensure both are being accounted for correctly.
Which Plan Are You On?
Not all student loans are the same. The plan you are on determines your threshold, your repayment rate, and how long you repay. Getting this wrong means you either overpay or underpay, and neither is ideal.
covers students from England and Wales who started an undergraduate course before September 2012, and all students from Northern Ireland, regardless of when they started.
covers students from England and Wales who started between September 2012 and July 2023.
applies to students who studied in Scotland, including some EU students who attended Scottish universities.
is the newest plan. It applies to students from England who started their undergraduate course from August 2023 onwards. This is the first tax year, 2026/27, in which Plan 5 repayments have started at all. If you started university in September 2023 or later, this is almost certainly your plan.
cover Master’s and PhD borrowers who took a separate postgraduate loan from the Student Loans Company.
If you are not sure which plan you are on, log in to your Student Loans Company online account or check your original loan agreement. If you genuinely cannot confirm it and your employer needs to set a default, from April 2026, the default has changed from Plan 1 to Plan 5.
Everything your employer does is strictly governed by the official UK student loan terms and conditions.
Repaying More Than One Student Loan
Some graduates carry both an undergraduate loan and a postgraduate loan at the same time. If this applies to you, both deductions run through your payslip simultaneously.
The undergraduate deduction runs at 9% above your plan’s threshold. The postgraduate deduction runs at 6% above the £21,000 postgraduate threshold. These are two separate calculations. They are added together on your payslip.
So if you earn £32,000 per year on Plan 2 and also have a postgraduate loan:
- Monthly gross pay: £2,666.67
- Undergraduate (Plan 2): £2,666.67 minus £2,448.75 = £217.92. 9% = £19.61
- Postgraduate: £2,666.67 minus £1,750.00 = £916.67. 6% = £55.00
- Total monthly deduction: £74.61
Both deductions should appear separately on your payslip. If only one appears, check with your employer that both plan types are correctly set up.
For full details on multi-loan scenarios across different plan combinations, our repaying more than one student loan page covers every combination with worked examples.
If you are transferred to a foreign branch of your company, your payroll might change, requiring you to look into overseas student loan repayment methods.
Two Jobs and One Loan
In situations where an individual has two jobs for two different employers, the deduction will be calculated independently by each employer using their payroll data only. The other does not know anything about the other job of the employee.
For example, if an individual earns £1,400 per month from Job 1 and £900 per month from Job 2, then the monthly threshold for Plan 2 (£2,448.75) will mean that neither the first nor the second employer makes a deduction because, for both employers separately, this monthly salary is less than £2,448.75. Nevertheless, a combination of salaries is less than £2,448.75, too.
But there is one exception. If an individual fills out a Self Assessment tax return, meaning he is either self-employed, has rentable property, or earns more than £100,000, then the deduction will be made according to all his incomes. You claim credit for any PAYE deductions already made, so you do not pay twice.
For employees who also do freelance or self-employed work on the side, this is worth knowing. Our self-assessment student loan repayment page explains exactly how the calculation works in those situations.
Interest Rates on Student Loans in 2026/27
Interest runs on your loan from the day payments were first made to you. It does not stop when you graduate. It does not pause while you are under the threshold. It accumulates continuously, even in periods when you are making no repayments.
Interest is set at the lower of RPI inflation or the Bank of England base rate plus 1%. For 2026/27, this works out at approximately 1.75%.
Interest is variable and tied to your income. At or below the £29,385 threshold, interest is RPI only, currently 3.2%. As income rises above the threshold toward £52,885, the rate increases on a sliding scale up to RPI plus 3%, which is currently 6.2%. Above £52,885, the maximum rate of 6.2% applies.
Same structure as Plan 1. Currently, approximately 1.75%.
Interest is set at RPI only, flat, regardless of income level. Currently 3.2%. There is no additional 3% margin, which is a deliberate design difference from Plan 2.
RPI plus 3% flat, currently 6.2%, with no income-based sliding scale. This is the highest rate of any plan.
Interest rates are updated each September based on the RPI figure from the previous March. The current rates reflect the March 2025 RPI of 3.2%.
For more details on how the numbers move over time, the student loan repayment interest rates section of this site walks through specific income scenarios.
What Happens When Your Income Drops or Fluctuates
Life does not always go in a straight line. You might go part-time, take unpaid leave, get sick, or move to a lower-paying role. Here is what happens to your student loan repayment in each of those situations.
If your earnings in a pay period fall below the monthly threshold, your employer takes no deduction that period. Automatic. You do not need to apply or call anyone.
If your earnings recover the following month, deductions restart at the correct amount.
The complication comes at year’s end. Say you earned above the threshold for six months and below it for six months. HMRC calculates deductions per pay period, not on annual income. So you may have paid deductions in the months you earned above the threshold, even if your total annual income for the year was below the annual threshold.
In that situation, you may be entitled to a refund. This does not happen automatically. You can get a refund through one of these routes:
- You complete a Self Assessment tax return, which allows HMRC to assess your full-year income
- The Student Loans Company contacts you directly if they identify an overpayment
- You contact the Student Loans Company yourself and apply, providing payslips and your P60 as evidence
If you do not claim it, the overpaid amount simply reduces your loan balance. Refunds typically process within four to six weeks once the application is reviewed.
Working Abroad With a Student Loan
If you take a job overseas after starting here, your PAYE deductions stop automatically because you leave the UK tax system. But the loan does not disappear.
You are legally required to continue making repayments based on your overseas income. The Student Loans Company sets country-specific thresholds that reflect local living costs, so your threshold may be different from the UK figure.
You must contact the SLC before you leave, or as soon as possible once abroad, to set up an overseas repayment arrangement. Failing to do this and not reporting your income can result in the full outstanding balance becoming due immediately as a penalty.
Interest continues to accrue while you are abroad, regardless of whether you are making repayments.
Full information on how to set this up and which thresholds apply by country is covered in our living overseas with student loan guide.
New Employee Student Loan: Getting Set Up Correctly From Day One
The new starter checklist your employer gave you when you joined is more important than it looks. The student loan section asks two things: do you have a loan, and which plan are you on?
If you answered both correctly, you are set up right. If you skipped it, ticked the wrong plan, or were not sure, your employer may be deducting at the wrong rate or not deducting at all.
Getting this right matters for both directions. If you are on Plan 4 (Scottish) but your employer defaults you to Plan 2, your threshold is set too low, and you are overpaying. If you are on Plan 2 but they put Plan 1, your threshold is lower than it should be, and you are again overpaying.
To fix a wrong plan:
- Check your payslip to see which plan type is being applied
- Confirm your actual plan with the Student Loans Company or through the GOV.UK student loan repayment plan checker
- Notify your employer in writing of your confirmed plan type
- HMRC also audits employer payroll for incorrect plan use and will prompt corrections, but do not rely on that to catch it quickly
When you move jobs in future, your previous employer will give you a P45. If it shows a “Y” in the student loan box, your new employer starts deductions from the first payslip where your earnings are above the threshold. No gap, no delay.
Frequently Asked Questions
Does my student loan repayment affect my mortgage application?
Your student loan does not appear on your credit file. But when you apply for a mortgage, most lenders ask about monthly financial commitments, and your student loan deduction counts as one. It reduces your disposable income, which affects how much lenders are willing to offer.
What happens to my student loan if I lose my job?
If you stop earning, your PAYE deductions stop automatically. There is nothing to apply for or cancel. When you start earning again above the threshold, deductions restart. Interest continues to accrue during any period when you are not making repayments.
Can I make extra repayments on top of what comes out of my payslip?
Yes. You can make voluntary payments directly to the Student Loans Company at any time. These reduce your balance faster. One important point: voluntary payments do not reduce or replace your PAYE deductions.
What if my employer is using the wrong plan type?
Check your payslip to see which plan is listed. Confirm your actual plan with the Student Loans Company. Then notify your employer in writing. HMRC also monitors employer plan usage and will prompt corrections if it identifies a mismatch, but do not wait for that process. Contact your employer directly.
Do student loan repayments show on my credit report?
No. UK student loans from the Student Loans Company do not appear on credit reference agency reports. They are not treated as traditional debt for credit purposes.
What happens to my student loan if I die?
The loan is cancelled in full. Your family or estate is not liable for any remaining balance. The Student Loans Company requires a death certificate as confirmation and cancels the outstanding amount completely.
Can my employer pay off my student loan as part of my salary package?
Yes, some UK employers offer loans to repay student loans or structure salary packages that include student loan contributions as an employee student loan repayment program. In UK law, any amount your employer pays toward your student loan is treated as taxable earnings.
