How Are Student Loan Repayments Calculated?

A student loan repayment is 9% of earnings above the plan threshold for undergraduate plans, or 6% for a postgraduate loan, calculated fresh in every pay period and rounded down to the nearest whole pound. In the 2025-26 financial year, higher education borrowers in England repaid £5.3 billion, a 6.4% rise on the year before, and the large majority of that reached HMRC through employer payroll rather than self-assessment ^[1].

That single sentence hides several rules that decide whether a payslip is right or wrong. The threshold changes by plan, the calculation is non-cumulative, the pay period is tied to National Insurance rather than to tax, and the rounding is always downward. Each of these is a place where a manual calculation goes astray.

This guide works through the calculation from first principles: the plans and their thresholds, the two HMRC methods (the deduction tables and the exact percentage method), a set of worked examples across weekly and monthly payrolls, and the awkward cases of week 53, multiple employments and postgraduate loans running in parallel.

Key takeaways

• The deduction is (period earnings minus the period threshold) times the plan rate, rounded down to the whole pound.
• Undergraduate plans (1, 2, 4 and 5) recover at 9%; postgraduate loans recover at 6%.
• Student loan pay periods always match the National Insurance earnings period, not the tax period.
• The calculation is non-cumulative: each pay period stands alone, with nothing carried forward.
• Where a postgraduate loan and an undergraduate plan both apply, both are deducted and the postgraduate loan comes first.

The building blocks: plans, thresholds and rates

Before any calculation, the payroll needs three pieces of information: which plan the employee is on, the threshold for that plan in the relevant pay period, and the rate that applies. The plan comes from HMRC via a start notice or from the employee's P45 or starter checklist. The threshold and rate are fixed for the tax year.

Five loan types can appear on a UK payroll, and their thresholds differ significantly. A borrower's plan is set by where and when they studied, so two employees on identical salaries can repay very different amounts ^[2].

There is no Plan 3, a gap that reliably confuses first-time payroll administrators ^[3]. The undergraduate plans all share the 9% rate; only the postgraduate loan sits at 6%, and it is the only plan that can legitimately run alongside another on the same employee.

Why the plan matters more than the salary

Because the thresholds range from £21,000 to £33,795, the plan drives the repayment far more than the wage does. An employee earning £35,000 repays roughly £729 a year on Plan 1, but only around £108 on Plan 4, because the Plan 4 threshold sits almost £7,000 higher and shelters far more of the salary ^[4].

This is why an HMRC-recognised payroll engine treats the plan type as a first-class field on the employee record. Applying the wrong plan does not just misstate a penny or two; it can change the deduction by several hundred pounds a year.

The two calculation methods

HMRC provides two routes to the same answer: the deduction tables and the exact percentage method. Both are approved, and both must produce a figure rounded down to the nearest whole pound ^[5].

The exact percentage method

This is the method payroll software uses, and it is the clearer of the two to explain. The steps are: take the employee's earnings for the pay period, subtract the period threshold for their plan, multiply the excess by the plan rate, and round the result down to the nearest whole pound ^[6].

For a Plan 1 employee paid monthly, HMRC's own instruction is to deduct £2,241.66 from monthly earnings, multiply the excess by 9%, then round down. For a postgraduate loan the figures become £1,750.00 deducted from monthly earnings and a 6% multiplier. The method never carries a fraction of a pound onto the payslip; the pence are always dropped.

The deduction tables

The SL3 tables are the manual alternative, arranged in bands of earnings. An administrator finds the row matching the employee's period earnings and reads off the deduction. The tables exist for employers without software and cover the common earnings ranges; where an employee earns more than the highest banded figure, the employer falls back to the exact percentage method described above ^[7]. The tables and the percentage method are designed to give the same answer, so the choice between them is one of convenience, not outcome.

HMRC publishes a fresh set of SL3 tables for every tax year, because the thresholds move each April in line with inflation. An employer relying on the tables therefore has to make sure the version in use matches the current tax year, since a table from the previous year applies the old thresholds and quietly over-deducts. Software removes that risk by carrying the current-year figures internally, which is one reason HMRC recognition is treated as a baseline rather than a feature in UK payroll.

Worked examples

The mechanics are easiest to trust once they are shown on real numbers. The examples below span the two most common pay frequencies and three plans.

Plan 2, monthly, £3,000 pay

The monthly Plan 2 threshold is £2,448.75. The excess is £3,000 minus £2,448.75, which is £551.25. Multiplying by 9% gives £49.61, which rounds down to a deduction of £49 for the month ^[8]. Over a steady year the same employee repays roughly £590, being 9% of the £6,615 by which £36,000 exceeds the Plan 2 threshold.

Plan 1, weekly, £600 pay

The weekly Plan 1 threshold is £517.30. The excess is £82.70, and 9% of that is £7.44, which rounds down to a £7 deduction for the week. A week in which the same worker earns £500 falls below the threshold, so no deduction is due, and nothing is remembered into the next week because the calculation is non-cumulative.

Plan 4, monthly, £3,500 pay

Plan 4 carries the highest undergraduate threshold, £33,795 a year, or £2,816.25 a month. An employee paid £3,500 has an excess of £683.75, and 9% of that is £61.53, which rounds down to a £61 deduction. The same £3,500 monthly pay on Plan 1, with its lower £2,241.66 threshold, would produce an excess of £1,258.34 and a deduction of £113. The gap of £52 a month between two employees on identical pay is entirely a function of the plan, and it shows why the plan type has to be confirmed rather than assumed.

Postgraduate loan, monthly, £2,500 pay

The postgraduate loan threshold is £1,750.00 a month and the rate is 6%. The excess is £750, and 6% of £750 is £45, a whole number that needs no rounding ^[9]. This illustrates why the postgraduate loan produces a materially smaller deduction than an undergraduate plan at the same salary: both the lower rate and the treatment of the two loans as separate calculations pull the figure down.

For a quick check on any of these figures alongside PAYE tax and National Insurance, the Moonworkers UK salary calculator applies the 2026-27 thresholds to a gross salary and returns the full deduction stack.

The rules that make the calculation non-obvious

The arithmetic is trivial. The rules around it are where accuracy is won or lost, and three of them catch payroll teams repeatedly.

The pay period follows National Insurance, not tax

Student loan deductions use the same earnings period as secondary Class 1 National Insurance, and the calculation is non-cumulative, worked out on the current period's gross pay in isolation ^[10]. This is a different basis from PAYE income tax, which is normally cumulative across the year. An administrator who reasons about student loans the way they reason about tax will get the treatment of a fluctuating salary wrong.

The practical effect is that a one-off bonus or an overtime spike triggers a deduction for that period alone, even if the employee's annual earnings would sit below the threshold. Any resulting over-collection is reconciled by the Student Loans Company, and the employee can reclaim it directly rather than through the payroll ^[11].

The reverse also holds. An employee whose earnings dip below the threshold in a quiet month simply pays nothing that month, and the payroll does not try to make up the difference later. Each period is a clean slate. This is the single most important difference between a student loan deduction and PAYE income tax, and the point that most often needs restating to an employer who queries why the deduction changed from one payslip to the next.

Week 53 and the odd pay day

When a weekly, fortnightly or four-weekly payroll produces an extra pay run at the end of the tax year, the odd day or days are treated as tax week 53. For student loans, week 53 follows the same per-period principles as every other period, with the weekly threshold applied to that final run ^[12]. Because the calculation is non-cumulative, week 53 does not require the special reconciliation that PAYE tax sometimes does, but the payroll still has to apply the threshold to the extra period rather than skipping it.

Two loans on one employee

An employee can hold an undergraduate plan and a postgraduate loan simultaneously. Both are deducted on the same payslip, each measured against its own threshold and rate, and the postgraduate loan is deducted first ^[13]. Deducting in plan-number order is a common error; priority runs by loan type, not by number. Accountants managing this across dozens of client schemes typically rely on a payroll bureau platform that flags the plan combination automatically rather than checking each notice by hand.

An employee with two jobs

The per-period, per-employer basis has a consequence for anyone holding two jobs at once. Each employer applies the full threshold independently, because neither sees the other's payroll ^[14]. An employee earning £1,500 a month in each of two jobs sits below the Plan 1 monthly threshold of £2,241.66 in both, so neither employer deducts anything, even though the combined £3,000 would attract a repayment if it were paid by a single employer.

This is not an error the employer can or should correct. HMRC and the Student Loans Company reconcile the borrower's total income after the tax year and collect any shortfall directly, usually through a self-assessment adjustment. The employer's duty begins and ends with applying the correct threshold to the earnings it actually pays, which is exactly how the student loan deduction process works through payroll for every other case.

PAYE collection versus self-assessment

Not every repayment runs through payroll. The collection route depends on how the borrower earns, and an employer only ever handles the PAYE portion.

For an employed borrower, the employer calculates and deducts the repayment on each payslip and passes it to HMRC with the rest of the Real Time Information submission ^[14]. A borrower with self-employed income repays through self-assessment instead, and a borrower with both employment and self-employment can repay through both channels in the same year, with HMRC and the Student Loans Company reconciling the total afterwards.

The volumes involved are substantial even in the smaller nations: HMRC collected a provisional £200.5 million in higher education repayments from Welsh borrowers alone in the 2025-26 financial year ^[15]. For the employer, the responsibility is narrow but strict: calculate the PAYE deduction correctly on every payslip, and report it accurately. Software that carries the HMRC Recognised badge submits these figures on the Full Payment Submission automatically, which is precisely what the badge certifies. The one-off case, such as a single instant payslip for an occasional employee, follows the same calculation rules as a monthly payroll.

Conclusion

Calculating a student loan repayment comes down to one formula applied with discipline: earnings above the threshold, multiplied by the rate, rounded down, every pay period, on its own. The formula is not the hard part. The hard part is remembering that the plan sets the threshold, that the period follows National Insurance rather than tax, that week 53 is a real period and not a rounding artefact, and that a postgraduate loan is a separate calculation with its own priority.

Handled by hand, these rules are a recurring source of small errors that compound across a client base. Handled by software that reads the notice, selects the plan, applies the current threshold and files the result, they become invisible. As the newest Plan 5 cohort enters repayment and the mix of plan types on a typical payroll widens, the case for treating the calculation as automated plumbing, checked rather than performed, grows stronger every tax year.

Frequently asked questions

What is the formula for a student loan repayment?

The deduction is the employee's earnings in the pay period, minus the threshold for their plan in that period, multiplied by the plan rate, then rounded down to the nearest whole pound. The rate is 9% for Plan 1, 2, 4 and 5, and 6% for a postgraduate loan. The calculation is worked out separately in every pay period, with nothing carried forward.

Are student loan repayments calculated on gross or net pay?

They are calculated on the same gross pay used to work out secondary Class 1 National Insurance for the period, before tax and before pension deductions in most cases. The pay period matches the National Insurance earnings period rather than the PAYE tax period. This means the deduction responds to the actual earnings paid in each period, including bonuses and overtime.

Why does a bonus month produce a bigger student loan deduction?

Because the calculation is non-cumulative and based on the period's earnings, a bonus paid in one month pushes that month's pay above the threshold and produces a larger deduction for that month alone. The payroll cannot spread it across the year. If the employee's total annual income turns out to be below the threshold, they can reclaim the over-collected amount directly from the Student Loans Company.

How is a postgraduate loan repayment calculated differently?

A postgraduate loan uses a 6% rate on earnings above £21,000 a year (£1,750 a month or £403.84 a week), rather than the 9% rate used for undergraduate plans. Where an employee has both, the two are calculated independently and the postgraduate loan is deducted first. Both deductions appear on the same payslip and are reported together on the Full Payment Submission.