Are Student Loan Payments Tax Deductible

If you are a UK taxpayer making student loan repayments, you may be wondering whether those payments reduce your tax bill. With repayments often collected through PAYE or declared on your Self Assessment return, it can seem as though they are part of your tax calculation. But are student loan payments tax deductible?

In short, student loan repayments are not tax deductible in the UK. They do not reduce your taxable income, they are not classed as allowable expenses, and they do not qualify for tax relief. Instead, they are treated as a separate obligation, calculated alongside tax and National Insurance but not deducted from your gross income before tax is worked out.

This guide explains how student loan payments work, how they interact with Income Tax and Self Assessment, and what this means for employees, the self employed and company directors.

How Student Loan Repayments Work

Student loans in the UK are repaid once your income exceeds a certain threshold. The amount you repay depends on your loan plan and how much you earn. Repayments are:

• A fixed percentage of income above a set threshold

• Collected through PAYE if you are employed

• Paid through your Self Assessment return if you are self employed or have other income

The repayment is not a tax, but it is collected in a similar way and often appears on payslips and tax returns next to Income Tax and National Insurance.

There are different types of loan plans depending on when and where you studied:

• Plan 1: Most undergraduate courses before 1 September 2012

• Plan 2: Most undergraduate courses from 1 September 2012 onwards

• Plan 4: Scottish student loans from April 2021

• Plan 5: For some new borrowers from 2023 onwards

• Postgraduate Loan (PGL): For master's and doctoral courses

Each plan has its own income threshold and repayment rate.

Current Repayment Thresholds and Rates (2024/25)

• Plan 1: 9% of earnings over £24,990

• Plan 2: 9% of earnings over £27,295

• Plan 4: 9% of earnings over £27,660

• Plan 5: 9% of earnings over £25,000

• Postgraduate Loan: 6% of earnings over £21,000

You may have to repay more than one loan type if you took out both undergraduate and postgraduate loans. Each is calculated separately based on the relevant threshold and rate.

Are Student Loan Payments Deducted Before Tax?

No. Student loan repayments are not deducted before tax. Your Income Tax and National Insurance are calculated first, based on your gross earnings. Student loan repayments are then applied to your post-tax income, using the thresholds above.

For example, if you earn £35,000 per year and have a Plan 2 loan:

• Your taxable income is £35,000

• You pay Income Tax and National Insurance as usual

• Your student loan repayment is 9% of £7,705 (£35,000 minus £27,295)

• Annual repayment: £693.45

• Monthly repayment: around £57.79

That £693.45 does not reduce your taxable income and does not count as a deductible cost on your tax return. It is simply money paid to the Student Loans Company based on your income level.

Can You Claim Tax Relief on Student Loan Payments?

No. There is no tax relief for student loan repayments in the UK. This means:

• You cannot claim the payments as a deductible expense

• They do not reduce your overall tax bill

• You cannot offset the repayments against your Income Tax or Corporation Tax

• They do not qualify as pension contributions or charitable donations for tax purposes

Whether you are an employee, sole trader or company director, student loan repayments are treated separately and must be paid when your income exceeds the threshold.

Employees: PAYE and Payslips

If you are employed, your employer will deduct student loan repayments automatically through the PAYE system. These deductions are based on:

• Your gross pay

• The loan plan reported by HMRC

• The applicable threshold

You will see the deduction on your payslip listed as “Student Loan” or “Postgraduate Loan.” The deduction is made after tax, and the money is passed to HMRC, then on to the Student Loans Company.

If you think you are on the wrong plan or should not be repaying yet, you should contact HMRC and the Student Loans Company to update your records.

Self Employed: Self Assessment Returns

If you are self employed or have income outside PAYE, you are responsible for reporting your income and calculating student loan repayments as part of your Self Assessment tax return.

The process is:

• You complete your return and declare your income

• HMRC calculates the amount due based on your loan plan

• The repayment is included in your tax bill

• You pay Income Tax, National Insurance and student loan together

You still do not receive any tax deduction for student loan payments. They are added as a separate line item in your Self Assessment calculation and do not reduce the tax you owe on your profits.

Company Directors: Salary and Dividends

If you are a company director and receive income from a mix of salary and dividends, your student loan repayment is based on your total income, not just your salary.

That means:

• Your salary is subject to PAYE deductions

• Your dividends are declared on your Self Assessment return

• HMRC calculates the student loan repayment based on both income sources

Dividends are not exempt from student loan calculations. If your total income exceeds the repayment threshold for your plan, you must pay the appropriate percentage on the amount above the threshold.

This is a key consideration when planning your director’s income. While dividends are more tax efficient than salary, they still count towards your student loan liability and can trigger repayments.

Voluntary Repayments and Overpayments

You can choose to make voluntary repayments to reduce your student loan balance faster. These are made directly to the Student Loans Company and are not tax deductible.

Voluntary repayments may be suitable if:

• You expect to repay the loan in full before it is written off

• You want to reduce interest charges over time

• You are near the end of the loan term and wish to clear the balance

However, most loans are written off after a fixed number of years (often 30 to 40, depending on the plan), and many borrowers never repay the full amount. It is worth checking your loan statement and repayment forecasts before making extra payments.

There is no tax advantage to making early repayments, and the amounts are still not allowable deductions.

Can Employers Pay Student Loans on Behalf of Staff?

In limited cases, employers may offer to pay off some or all of an employee’s student loan as part of a recruitment or retention package. However, these payments:

• Are treated as earnings

• Are subject to Income Tax and National Insurance

• Must be reported through payroll as a taxable benefit

The employee benefits from the loan being reduced, but there is no tax relief on the payment and no exemption from employer contributions.

Employers cannot treat these payments as deductible business expenses unless they are directly linked to taxable remuneration.

Conclusion

Student loan payments are not tax deductible in the UK. They are separate from Income Tax and National Insurance, calculated independently and applied based on your income level. Whether you are employed, self employed or running a limited company, you must pay student loan repayments if your income exceeds the relevant threshold, but these payments will not reduce your tax bill.

Understanding how student loan repayments work is essential for accurate budgeting and tax planning, especially if your income varies or you receive income from multiple sources. While there is no tax relief, repayments are clearly shown on payslips and tax returns, helping you track your progress toward repaying your loan.

If you believe you are repaying in error or need to update your plan type, contact HMRC or the Student Loans Company for guidance. For more complex tax situations, especially those involving dividends or irregular income, professional advice can help ensure you meet your obligations without overpaying.