For many former students in the UK, repaying their student or post-graduate loans is a significant financial consideration. While repayments are often made through the PAYE system for employed individuals, self-employed people and those with additional income sources may need to make repayments through the Self Assessment system. This blog post explores how these repayments work and what you need to be aware of.

Repayment Methods

There are three main ways to repay student and post-graduate loans:

• Through PAYE deductions from wages or salary
• Via Self Assessment to HMRC
• Directly to the Student Loans Company (SLC)

Typically, repayments start from the beginning of the tax year following course completion or departure.

Repayment Thresholds

Loan repayments only kick in when an individual’s income exceeds the repayment threshold for their specific loan type. For the 2023/24 and 2024/25 tax years, the annual thresholds vary depending on the loan plan.

For Plan 1 loans, the threshold is £22,015 in 2023/24, rising to £24,990 in 2024/25. Plan 2 loans have a consistent threshold of £27,295 for both years. Plan 4 loans see an increase from £27,660 in 2023/24 to £31,395 in 2024/25. Post-graduate loans maintain a steady threshold of £21,000 across both tax years.

Repayments for Plan 1, 2, and 4 student loans are 9% of income above the threshold, while post-graduate loans require 6% of income above the threshold.

Self Assessment Repayments

If you’re self-employed or have income sources beyond PAYE employment that require a tax return, you’ll make repayments through Self Assessment. For those with both employed and self-employed income, repayments will be made through both PAYE and Self Assessment, with PAYE deductions considered when calculating Self Assessment repayments.

Unearned Income Considerations

Unearned income (such as savings interest or rental income) is factored into student loan repayments if it exceeds £2,000 in the tax year. If it’s below this threshold, it’s disregarded for repayment calculations.

Example Scenario

Let’s consider Martha, who has:

• A job earning £30,000
• Freelance income of £4,000 (after trading allowance)
• Savings interest of £800
• A Plan 2 student loan

Her employer deducts £243 in student loan repayments through PAYE. When completing her Self Assessment, her total income is £34,800. However, as her unearned income (£800) is below £2,000, it’s ignored for loan repayment calculations.

Her total repayment obligation is £603 (9% of £34,000 – £27,295). After subtracting the £243 already paid through PAYE, she owes an additional £360 through Self Assessment, due by 31 January 2025.

Payrolled Benefits Warning

It’s important to remember that payrolled benefits should not be considered in student loan repayment calculations. HMRC has made errors in the past, which led to incorrect repayments. Although they have now fixed this issue, it’s still a good idea to ensure that payrolled benefits have not been mistakenly included in your repayment calculations.

Managing student loan repayments can be complex, especially when dealing with multiple income sources. If you need clarification on your repayment obligations or calculations, it’s advisable to seek guidance from HMRC or call our qualified tax advisors. Stay informed and proactive to ensure you’re meeting your repayment responsibilities while not overpaying.