Website of the UK government

How student loan repayments are worked out

Most people pay back their student loans in the same way as they pay their income tax. If you are employed in the UK, your student loan repayments will be collected through the Pay As You Earn (PAYE) system.

You don’t start paying back your loans until you reach the repayment threshold. This means that you will begin making repayments when your gross  earnings are more than:

If you receive income from sources other than employment

f you have any “unearned income” from sources outside your employment – for example, from savings or investments – remember that this counts towards your total earnings. You’ll need to make extra student loan repayments through Self Assessment.

If you are employed overseas, or if you are self employed, you will make your repayments in a different way.  If you are self employed, you will work out your repayments based on the annual threshold of £15,000 - similar to the way that you calculate your tax and national insurance.

• Repaying student loans through PAYE
• Repaying student loans through Self Assessment
• Repaying student loans when you move overseas

How much you have to repay

If you earn less than the threshold or thresholds that apply to you, you don’t have to make any repayments.

Your student loan repayments will be nine per cent of anything you earn over the relevant thresholds. Remember that this isn't the same as nine per cent of your total income - you only make repayments on what you earn above the threshold.

If your income varies over the year through PAYE

If you get paid the same each week or month, you will make your repayments in equal instalments. If the amount you earn changes during the year, the amount you repay will be based on each individual PAYE period.

For example, you might earn £1,500 in January and repay £22. If were paid £1,600 in the following month, your repayment for February would be £31. In both cases the repayment equates to 9% of the amount you earned over the monthly threshold of £1,250.

If your total earnings for a particular tax year are not more than £15,000, you can apply for a refund of any PAYE repayments you made during that tax year. If your total earnings are more than £15,000, you won’t qualify for a refund – even if your PAYE income has varied.

• Repaying student loans more quickly and getting refunds

How it works in practice

Repayment example one: Jane

Jane is employed, and pays her taxes through PAYE. She earns £1,500 a month - £250 over the repayment threshold of £1,250 per month.

• Jane's repayments will be nine per cent of £250: £22 a month

Repayment example two: Richard

Richard works full time, and pays his taxes by Pay As You Earn (PAYE). His weekly wage is £350. Over the year, he also gets £2,500 in unearned income from investments.

• Richard’s weekly wage is £62 over the weekly repayment threshold of £288 a week. His PAYE repayments will be nine per cent of £62: £5 a week.
• Richard’s earnings from employment have already put him over the annual threshold of £15,000. On top of his PAYE repayments, he will need to make a repayment through self assessment. This will be nine per cent of £2,500: £225 for the year.

How interest on your student loan is calculated

The interest rate charged on student loans is linked to the rate of inflation, based on the Retail Prices Index.

The interest rate for student loans applies from 1 September to 31 August each year. From 1 September 2008 to 31 August 2009, the rate is 3.8 per cent.

Taking inflation into account, the value of the amount you pay back will be more or less the same as the value of the amount you borrow - no one makes any profit on the loan.

Interest accrues on your loan until it has been repaid in full.

If you repay your loan through PAYE or Self Assessment, the Student Loans Company will receive details of your repayments from HM Revenue and Customs (HMRC) after the end of the tax year. When these details come through, the amount of interest you are charged will be adjusted to reflect when you actually made the repayments.

This means that you won't be charged interest on the part of the loan you have already paid back.

• Repaying student loans through PAYE
• Repaying student loans through Self Assessment
• Repaying student loans when you move overseas

More useful links

• Contact the Student Loans Company repayment helpline (for courses starting from 1998)