Lori Meadows
Student loans can be a daunting prospect for graduates, but understanding how they work can help to alleviate some of the stress. Student loan repayment in the UK is handled by the Student Loans Company (SLC), and the amount you repay depends on your income and loan plan. You only need to start repaying your student loan once your income reaches a certain threshold, and you don't need to repay if your income drops below this threshold. There is no penalty for making extra repayments, but there are also no refunds for these extra payments. So, is it worth paying off your student loan early?
| Characteristics | Values |
|---|---|
| When to start repaying your loan | Depends on your repayment plan and income |
| How much to pay | Depends on your repayment plan and income |
| Repayment methods | Debit card, bank transfer, cheque, or standing order |
| Repayment frequency | Monthly |
| Minimum income threshold for repayment | £382/week or £1,657/month (before tax and other deductions) for Plan 1 |
| Interest rate | 4.3% (as of September 2024) |
| Inflation rate | 4.3% (as of March 2024) |
| Loan write-off | Loans are eventually cleared; check when your loan will be written off |
| Repayment while abroad | Notify the Student Loans Company (SLC) and make repayments directly to them |
| Overpayments | No penalty for making extra repayments; no refund for overpayments |
| Refunds | Possible for overpayments; keep payslips and P60 for your records |
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What You'll Learn
When to start paying off your student loan
Student loans in the UK are ''income-contingent' loans, meaning that you only start repaying your student loan when your income is over the threshold amount for your repayment plan. The threshold amount changes on 6 April every year and is usually based on the RPI inflation rate in March of the previous year. For instance, the repayment threshold for the 2025 tax year is £26,065.
If you are employed, your repayments will be automatically deducted from your payroll. If you are self-employed, you must make your own arrangements to pay HM Revenue and Customs (HMRC). You can also make extra repayments towards your loan, although there is no penalty for doing so, and you cannot get a refund for any extra repayments.
If you are planning to leave the UK for more than three months, you must inform the Student Loans Company (SLC) by updating your employment details. You will be expected to keep repaying your loan unless you can provide proof that your overseas income is below the threshold. If you do not inform the SLC, you may accrue debt ('accrue arrears') on your account.
If you have nearly paid off your loan, you should contact the SLC to ensure that payments do not continue past the point that you have cleared your debt. When you have less than two years of loan repayments remaining, you have the option to leave the PAYE scheme and make monthly payments by direct debit instead.
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How much to pay
The amount you pay towards your student loan in the UK depends on which repayment plan you are on. For Plan 1 graduates, the threshold for repayments is £382 per week or £1,657 per month (before tax and other deductions), and you will repay 9% of everything you earn over £26,065. For Plan 2, the threshold is £416 per week or £1,815 per month (before tax and other deductions).
If you are employed, your repayments will be taken out of your salary at the same time as tax and National Insurance. You can check how much is being taken by looking at your payslip. If you are self-employed, HMRC will calculate how much you pay based on your tax return.
You can make extra repayments towards your student loan, but there is no penalty if you don't. If you are considering making extra repayments, you should first check when your loan will be written off. You can contact the Student Loans Company (SLC) to find out the total amount you owe (the 'settlement amount') and the date you need to pay by (the 'settlement date'). You will need your customer reference number (CRN) and your latest payslip. You can then pay the settlement amount by debit card over the phone, bank transfer, or cheque.
If you don't pay the settlement amount by the settlement date, you will need to contact the SLC again, as the amount you owe may have changed. If you have made too many payments to the SLC, you should be able to get a refund.
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Making extra repayments
If you want to make extra repayments, you can do so by contacting the Student Loans Company (SLC) to find out the total amount you owe (the "settlement amount") and the date it needs to be paid by (the "settlement date"). You will need your customer reference number (CRN) and your latest payslip (if you are employed). Once you know the total amount you owe, you can make extra repayments by debit card over the phone, bank transfer, or cheque. If you are making a bank transfer from a UK bank account, use the following bank details:
- Account name: Student Loans Company
- Sort code: 60 70 80
- Account number: 10027254
If you are paying by cheque, make it payable to the Student Loans Company Ltd and send it to the following address:
Finance Department
Student Loans Company Ltd
10 Clyde Place
Glasgow G5 8DF
Remember to write your customer reference number (CRN) on the back of your cheque to ensure that your payment is applied to your student loan account.
It is important to note that if you do not pay the settlement amount by the settlement date, you will need to contact the SLC again, as the amount you owe may have changed. Additionally, if you have made extra payments and end up overpaying, you should be able to get a refund from the SLC.
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Paying off your loan early
If you want to pay off your student loan early, you can do so by contacting the Student Loans Company (SLC) to find out the total amount you owe (the 'settlement amount') and the date by which you need to pay it (the 'settlement date'). You will need your customer reference number (CRN) and your latest payslip (if you're employed). Once you know the total amount you owe, you can pay by debit card over the phone, bank transfer, or cheque.
It's important to note that if you don't pay the settlement amount by the settlement date, you'll need to contact SLC again, as the amount you owe may have changed. Additionally, there is no penalty for making extra repayments, and you can choose to make them in addition to your regular repayments. However, you cannot get a refund for any extra repayments you make.
Before making additional payments, consider any other debts you may have and whether it makes sense to clear them first. This is because, for most graduates, there is little benefit to paying off student loans early, as there is no real cost of borrowing, and the interest rates are tied to inflation. Additionally, student loans are eventually cleared, and they only have a fixed life before being wiped.
If you are a full-time student from Wales, you may be able to get £1,500 of your Maintenance Loan written off through the Student Finance Partial Cancellation Scheme. To maximise this benefit, you can make a voluntary repayment of £5 as soon as you've received at least £1,500 in a maintenance loan. This will reduce your loan balance and lower the interest.
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What to do if you move abroad
If you're planning to move abroad, there are a few things you need to do regarding your student loan repayments. Firstly, if you're going to be away from the UK for more than three months, you must inform the Student Loans Company (SLC) before you leave. You can do this by updating your employment details on their website or by completing an 'Overseas Income Assessment Form'. This form will ask for details of your income and employment status in the country you're moving to.
Once you've informed the SLC of your move, they will take over the collection of your loan repayments. The amount you repay will depend on your overseas earnings and the repayment threshold relevant to the country you're moving to. This threshold may be different from the UK threshold due to differences in living costs. The SLC will likely ask you to set up a direct debit repayment arrangement.
If you do not inform the SLC of your move abroad, you may incur penalties. You could also build up debt on your account, as repayment arrears may accumulate. Therefore, it is important to keep the SLC updated on your employment and income status, both while you are abroad and if you return to the UK after being away for more than three months.
Additionally, if you have been making loan repayments directly to the SLC while abroad, and are then asked by HMRC to complete a self-assessment tax return upon your return, you must take steps to avoid making overpayments. You should contact the SLC to transfer the direct overseas repayments to HMRC and then apply to HMRC using an informal 'stand over' to ensure overpayments are not deducted.
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Frequently asked questions
If you are employed, your student loan repayments will be taken out of your salary at the same time as tax and National Insurance. If you are self-employed, HMRC will calculate how much you pay from your tax return.
You can make extra repayments towards your student loan. You can pay by debit card over the phone, bank transfer, or cheque. There is no penalty for making extra repayments.
You can contact the Student Loans Company (SLC) to find out the total amount you owe and the date you need to pay by. You will need your customer reference number (CRN) and your latest payslip.
