Student Loan and Tax: Are You Overpaying?

Student loan repayments are deducted alongside your tax and National Insurance through PAYE. But unlike tax, most people never bother to check whether the deductions are correct. Spoiler: they are frequently wrong, and thousands of graduates overpay every year without realising it.

How Student Loan Repayments Work Through PAYE

When you earn above a certain threshold, your employer starts deducting student loan repayments from your salary. The amount depends on which repayment plan you are on:

**Plan 1** (England and Wales loans taken before September 2012, and all Scottish and Northern Irish loans): Repayment threshold is 24,990 pounds per year (2025/26). You repay 9% of everything you earn above this threshold.

**Plan 2** (England and Wales loans taken from September 2012): Repayment threshold is 27,295 pounds per year (2025/26). You repay 9% of earnings above this threshold.

**Plan 4** (Scottish loans from April 2021): Repayment threshold is 31,395 pounds per year (2025/26). You repay 9% of earnings above this.

**Plan 5** (new English loans from September 2023): Repayment threshold is 25,000 pounds per year (2025/26). You repay 9% of earnings above this.

**Postgraduate loan:** Threshold is 21,000 pounds per year. You repay 6% of earnings above this.

Your employer makes these deductions monthly based on the thresholds divided by 12. This is similar to how income tax works through PAYE.

Why Overpayment Happens

**Your employer has the wrong plan type.** If HMRC tells your employer you are on Plan 2 when you are actually on Plan 1 (with a lower repayment rate threshold), your deductions will be calculated incorrectly.

**You have multiple jobs.** Each employer deducts student loan repayments independently. If your income from each job is below the threshold but your combined income is above it, you might not be making enough repayments. Conversely, if both employers deduct based on their respective payrolls, you could end up repaying too much in total because the threshold is applied twice.

**You have already repaid your loan in full.** This is the most common cause of student loan overpayment. The Student Loans Company (SLC) and HMRC do not communicate in real time. Your loan might be fully repaid, but your employer continues deducting because HMRC has not yet sent a stop notice. It can take up to 4 months after your loan is fully repaid for deductions to stop.

**You left your job mid-year.** Student loan repayments are calculated on a non-cumulative basis (unlike income tax). Each pay period is treated independently, which can lead to small overpayments when your income fluctuates.

How to Check If You Are Overpaying

1. **Check your loan balance.** Log into your Student Loans Company account at repaymentplan.slc.co.uk. Compare your remaining balance to the deductions shown on your payslips.

2. **Verify your repayment plan.** Check that the plan type on your payslip matches the plan shown on your SLC account. The plan type is shown as a code on your payslip (SL1, SL2, etc.).

3. **Calculate the correct repayment.** Take your annual salary, subtract the relevant repayment threshold, and calculate 9% of the result. Compare this to what has actually been deducted. AuditMyTax can help you check whether your combined tax and student loan deductions are correct.

4. **Check if your loan is close to being repaid.** If your remaining balance is small, contact SLC to find out when you are expected to finish repaying. Consider making direct payments to SLC for the final few months to avoid overpayment through PAYE.

How to Claim a Student Loan Refund

If you have overpaid your student loan, the refund comes from the Student Loans Company, not HMRC. Here is what to do:

1. **Contact SLC** on 0300 100 0611 or through your online account

2. **Provide evidence** of overpayment (payslips showing deductions after your loan was repaid, or evidence of incorrect plan type)

3. **Request a refund.** SLC will verify the overpayment and issue a refund directly to your bank account

If you have overpaid income tax (as opposed to student loan repayments), that refund comes from HMRC. If both are wrong, you will need to deal with both SLC and HMRC separately.

How to Prevent Student Loan Overpayment

• **Monitor your loan balance** and keep track of how close you are to full repayment
• **Contact SLC 4-6 months before your loan will be repaid** and ask about switching to direct debit for the final payments. This gives you control and prevents the delay between SLC and HMRC communications.
• **Check your payslip** for the correct plan type. If it is wrong, contact HMRC on 0300 200 3300 to correct it.
• **If you change jobs**, make sure your new employer has the correct student loan plan information. This is usually handled through the starter checklist.

The Overlap With Tax

Student loan overpayment is separate from income tax overpayment, but they often go hand in hand. If your tax code is wrong, your tax deductions will be wrong, and there is a reasonable chance your student loan deductions might also be miscalculated. When checking your P60 or payslips, look at both the tax and student loan figures.

Bottom Line

Student loan repayments are not optional, but overpaying them is definitely something to avoid. Check your payslip, verify your plan type, and keep an eye on your remaining balance. If you have already paid off your loan and deductions are still being taken, act fast. The money is yours and you are entitled to every penny back.