Student Loans - How Do They Work?

So you’ve finished your studies, thrown the mortar board in the air and come out of University with a student loan to repay. But how do you actually repay your student loan? 

Martin Lewis has described repayments of student loans as effectively an additional tax charged only if you earn enough money. And that’s pretty much spot on. But the actual mechanics of how you repay the student loan depends on a few different factors: 

What Student Loan Plan You’re On

Depending on when you started studying, you’ll be on one of a few different plans. Those different plans have different thresholds of how much you can earn before you start repaying, generally somewhere between £21,000 and £28,000 (based on 2024/25 figures). You then repay your student loan at a rate of 9% of your income above that level. 

Repaying Student Loan if you’re employed

Easy. Your employer will deduct the student loan repayments from your pay each time you get paid, and pay it over on your behalf. 

What if you’re self employed or director of your own company? 

This is where things get a bit trickier. You’ll repay student loans through your annual personal tax return. The same thresholds will apply, but it’s calculated on an annual basis. You’ll pay the student loan repayment as part of the total tax to HMRC. 

But, there’s an extra complexity in this situation: payments on account. If your tax liability is more than £1,000 you are likely to need to make payments on account toward the following year. Student loan repayments are not included in these calculations, meaning you will always have a larger January payment even if your overall income remains consistent, as a result of the student loan repayments that need to be made. 

Does the student loan ever get written off? 

This, once again, depends on the plan that you are on. Generally speaking, they get written off somewhere between 25 and 40 years after you took the loan out, or when you turn 65. 

What if I move abroad?

In this situation, HMRC stop being involved in the repayment of your student loan and the Student Loans Company takes over. You should contact them directly to arrange repayment of your student loan. They will ask for details of your income and the country that you now live in, and work out a direct debt repayment plan.