How does repaying student loans work in the United Kingdom?

Employees who request loans from the UK government to fund their college education may be eligible to have their repayments deducted through payroll depending on the terms of their repayment plan. Employees should declare any loans when they complete their onboarding checklist, and HMRC will also run their own checks and automatically send any updates to the payroll.

The employees cannot choose the repayment plan they are on. If they have more than one loan, they could be on different plans at the same time.

How and when Employees will repay the loan depend on when they started the course.

There are 4 types of repayment plans, as outlined on the UK government website:

• Repayment plan 1 - If employee started the course before September 1, 2012 Employee will start making repayments if the income is over the repayment threshold, which is currently £20,195 a year.
• Repayment plan 2 - If employee started the course between September 1, 2012 and July 31, 2023 Employee will start making repayments if the income is over the repayment threshold, which is currently £27,295 a year.
• Repayment plan 5 - If employee will start an undergraduate or postgraduate course after August 1, 2023. The repayment threshold for the 2026-27 tax year will be £25,000 a year.
• Postgraduate Loan - If employee started a postgraduate Master’s course on or after August 1, 2016 or a Doctoral course on or after August 1, 2018. Employee will start making repayments if the income is over the repayment threshold, which is currently £21,000 a year.
• Plan 4 for students that started an undergraduate or postgraduate course in Scotland on or after September 1, 1998

Employees need to set a repayment account where they can see all the details regarding the ongoing payments.

The Student Loan is paid directly to the students at the start of each study term. Employees will become liable for each installment once it’s paid.

Students will become liable for future installments at the start of the second and third terms of the course and they will remain liable for this amount even if they withdraw, transfer or suspend studies at a later date.

Employer may collects student loan repayments on behalf of HMRC directly from employee’s salary at the same time as tax and National Insurance and repayments will be shown on the payslip. Repayments are based on pre-tax income, but the money is taken after tax has been paid.

How much employees repay it depends on their income, not on the amount they borrowed.

If employee income falls below the repayment threshold, the repayments will stop and only restart when the income will return over the threshold again. The threshold amounts change on April 6 every year.

Employees should let employer know which repayment plan applies to them, so employer can deduct the right amount. HMRC will provide guidance to employers, including the repayment thresholds for each plan type.

It’s important to understand that repayments taken by employer will be worked out on individual pay periods – not on total income for a whole year. This means that if income varies each month, employees could pay back more some months than others.

When employees change job, previous employer should give a P45 with a ‘Y’ in the student loan box. New employer will start to make student loan deductions from salary payment. If employees don’t have a P45, employer may ask to fill in a starter checklist, which has a tick box to show the student loan.

If employees think they are on the wrong plan, they should check on what plan they are on by signing into their online repayment account and downloading their ‘active plan type letter’.

Then check with employer what information they have.

If there is a different, employer can update payroll details and employees can request a refund to the Student Loans Company (SLC) if the plan has been overpaid.

It’s advisable to hold onto your payslips and P60 form for when you need to request the refund.

It’s advisable to hold onto your payslips and P60 form for when you need to request a refund with the Student Loans Company (SLC).

Here you can find the detailed Student loans guide to terms and conditions 2023 to 2024