How does student loan repayment actually work?

Student loan repayment works differently from most other borrowing. You do not normally agree a fixed monthly payment based on how much you owe. Instead, what comes out of your pay depends mainly on how much you earn and which repayment plan you are on.

That creates one of the most important things to understand about a UK student loan.

Someone who owes £10,000 and someone who owes £50,000 can have exactly the same amount deducted from their salary.

If they are on the same repayment plan and earning the same amount, the balance itself does not decide that month’s payment. So the immediate question is easy enough to answer.

How much do you repay?

The more useful question is what that repayment actually means for your take-home pay, your future earnings and the other things you want your money to do.

The basic repayment rule

For the 2026 to 2027 tax year, you repay only when your income is above the threshold for your repayment plan.

Plan	2026 to 2027 income threshold	Repayment rate
Plan 1	£26,900 a year	9%
Plan 2	£29,385 a year	9%
Plan 4	£33,795 a year	9%
Plan 5	£25,000 a year	9%
Postgraduate Loan (Plan 3)	£21,000 a year	6%

Thresholds can change each tax year. Always check the figure for the year you are being paid.

For Plans 1, 2, 4 and 5, you repay 9 per cent of the income above your threshold. A Postgraduate Loan is repaid at 6 per cent above its separate threshold.

You do not repay 9 per cent of your entire salary.

Imagine you are on Plan 2 and earn £3,000 before tax in one month.

The precise monthly Plan 2 threshold for 2026 to 2027 is £2,448.75. That leaves £551.25 above the threshold.

Nine per cent of £551.25 is £49.61. Payroll deductions are rounded down to the nearest pound, so £49 would be taken for the student loan.

That also gives you a useful way of thinking about future pay rises.

Once you are above the threshold, another £100 of gross pay normally creates roughly another £9 of undergraduate student loan repayment. You still keep the rest of that increase before allowing for tax, National Insurance and any other deductions.

Your salary is not quite the number that matters

When people think about student loan repayments, they often start with annual salary. Payroll actually works by pay period.

If you are paid monthly, your employer compares that month’s relevant earnings with the monthly threshold. That means a bonus, overtime payment or commission can produce a student loan deduction even if your normal salary would not.

For example, somebody might normally earn below their plan’s monthly threshold and make no repayments. Then they receive a large bonus. That month’s income crosses the threshold, so a repayment appears. This is one reason student loan deductions can look inconsistent when you compare payslips month by month.

There is another wrinkle. If your total income for the finished tax year was below the annual repayment threshold, you may be able to ask the Student Loans Company for a refund of repayments taken because individual pay periods crossed the threshold.

The lesson is not simply to know your annual salary.

It is to understand what actually reaches you after all the deductions that apply to your pay.

A £3,000 gross monthly salary is not £3,000 of money available for rent, saving, a mortgage or everything else in your life. The student loan is one part of the gap between those two numbers.

A bigger balance does not necessarily mean a bigger financial problem

This is where student loans become very different from ordinary debt.

Imagine two graduates.

Alex owes £15,000.

Sam owes £55,000.

They are both on Plan 2, and both earn £36,000.

Their student loan repayments from their salary are the same.

Sam’s larger balance can affect how much interest accumulates and whether the loan is eventually repaid in full, but it does not automatically mean Sam has less take-home pay each month than Alex. Student loan repayments are income-contingent rather than calculated from the outstanding balance.

That changes how useful the balance is as a number.

With a credit card, a larger balance usually means more interest and often a longer or more expensive route to clearing the debt.

With a student loan, the question is more complicated because different plans have different write-off rules, interest arrangements and repayment periods.

That means the biggest-looking balance is not automatically the thing creating the biggest pressure on someone’s finances today.

Someone with a £50,000 student loan but no expensive consumer borrowing may have far more flexibility each month than somebody with a £5,000 student loan alongside high credit-card repayments. The balance tells you something. It does not tell you the whole financial story.

Higher earnings can change more than the repayment

As your income rises, student loan repayments rise too. That matters when thinking about a new salary, overtime, a bonus or a change of job.

Suppose somebody on Plan 5 moves from £30,000 to £40,000. At £30,000, £5,000 of annual income is above the £25,000 threshold, giving an approximate annual repayment of £450. At £40,000, £15,000 is above the threshold, giving an approximate repayment of £1,350.

The £10,000 salary increase has therefore increased the annual student loan repayment by around £900 before considering the effect of tax, National Insurance, pension contributions or anything else. That does not make the pay rise financially unattractive. It means the headline increase in salary and the increase in spendable income are not the same thing.

That distinction can matter when somebody is considering a larger mortgage payment, increasing regular savings or committing to another monthly cost on the back of a higher salary.

The useful figure is not simply the new salary.

It is what the new salary actually changes after the deductions and commitments around it have been taken into account.

Two jobs can produce a surprising result

If you have two separate employers, student loan repayments are normally assessed against each job separately rather than adding the two salaries together for payroll purposes.

So two jobs can together produce income above your annual threshold while neither individual job is paying enough to trigger a payroll deduction.

Self Assessment works differently because annual income can be considered as part of the tax-return calculation.

This is a good example of why a single headline rule rarely describes everyone’s position perfectly. “Earn above £29,385 and you repay your Plan 2 loan” is broadly useful.

It is not the complete answer for somebody whose earnings are spread across different jobs or who also has self-employed income.

A postgraduate loan can change the maths again

An undergraduate loan and a Postgraduate Loan can be repaid at the same time.

If you have both, the postgraduate repayment is calculated at 6 per cent above its £21,000 threshold and the undergraduate repayment at 9 per cent above the relevant undergraduate threshold.

At £3,000 gross pay in a month, somebody with a Plan 2 loan and a Postgraduate Loan could therefore have both deductions taken.

This is another reason two people earning exactly the same salary can receive different amounts into their bank accounts. One might have no student loan. One might have an undergraduate loan. Another could have both undergraduate and postgraduate deductions.

The salary is the same, while the amount available to actually use is not.

Does paying the loan off early make sense?

You can make extra student loan repayments without an early-repayment penalty, but that does not necessarily mean paying it off faster will leave you better off.

Imagine two people who each have £5,000 available. One is earning enough that they are likely to repay their student loan in full before it is written off. The other has a much larger balance, earns less and may never repay the whole amount.

Putting £5,000 towards the loan could therefore have very different consequences for each of them.

There is also the question of what else that £5,000 could be used for. It might be your emergency fund, part of a house deposit or money set aside for another goal. You may also have other borrowing that is costing you more.

That does not automatically make an extra student loan repayment a bad idea. It simply means the decision makes more sense when you look at what you are likely to repay anyway and what you would be giving up elsewhere.

Before making an extra payment, it is worth understanding your repayment plan, how your earnings might develop and how long you are likely to keep making repayments. Then you can judge the student loan alongside the other things your money needs to do.

What does your student loan mean for your wider finances?

In practice, your student loan affects your finances in two different ways. Month to month, it reduces the amount of salary that reaches your bank account. Over the longer term, the balance matters more in the context of your repayment plan, how your earnings develop and whether you are likely to repay the loan before any remaining balance is written off.

That is why the amount you owe is only part of the picture. What matters just as much is what is coming out of your pay now and how much you actually have available after tax, National Insurance, pension contributions and your other regular commitments.

If your student loan deduction rises, that might leave a little less available for saving or another goal. If you also have a postgraduate loan, the difference between your headline salary and your take-home pay can become more noticeable. A bonus might cause a larger deduction in one month without meaning your normal monthly budget has permanently changed.

So if you are asking “How much will I repay?”, your income and repayment plan give you the answer. The more useful question is what that repayment changes elsewhere in your finances.

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