Can I stop paying student loan once my income drops?

Many people assume student loan repayments work like normal debt, where you can pause, reduce or renegotiate payments when your income changes. In reality the UK student loan system works very differently. Repayments are tied directly to your earnings and they automatically adjust when your income drops. In my opinion this is one of the fairest features of the student finance system, but many graduates do not fully understand how it works which leads to worry when income falls.

This guide explains exactly what happens to student loan repayments when your income goes down, whether you can stop paying, how PAYE handles changes automatically, what to do if you are self employed, and the rules for each repayment plan. By the end you will know exactly where you stand and what actions you need to take, if any.

Understanding how UK student loan repayments work

Student loans in the UK do not work like commercial loans or personal debt. Instead of fixed payments, your repayments are based entirely on your income. You only pay when you earn above a threshold, and the moment your income drops below that threshold your repayments reduce or stop automatically.

This applies whether you are:

• Employed

• Self employed

• Earning income abroad

• Working multiple part time jobs

The key point is that your repayments are driven by your earnings, not by the amount you owe or the original loan terms.

In my opinion this makes student loans closer to a graduate tax than a conventional loan.

Can you stop paying if your income drops?

Yes. You stop paying automatically as soon as your income falls below your repayment threshold.

You do not need to call the Student Loans Company, you do not need permission and there are no penalties for stopping. The system is designed so that lower earners do not face repayments they cannot afford.

Your threshold depends on your repayment plan.

Repayment thresholds for each plan

Your repayment plan depends on when and where you studied.

Plan 1

You usually stop paying if you earn under £24,990 a year.

Plan 2

You usually stop paying if you earn under £27,295 a year.

Plan 4 (Scotland)

You stop paying if you earn under £31,395 a year.

Plan 5 (new from 2023)

You stop paying if you earn under £25,000 a year.

Postgraduate Loan

You stop paying if you earn under £21,000 a year.

You only repay on income above your threshold.

So if your income falls below these levels, repayments stop.

How repayments stop automatically if you are employed

If you are employed, your student loan is collected through PAYE. This means:

• Your employer calculates repayments

• HMRC tells your employer your loan type

• Repayments are only taken if your income is above your threshold

When your income drops, your employer simply reduces or stops the deduction on your payslip. This happens automatically.

Example

You earn £32,000 and pay student loan each month. Your hours change and your salary drops to £22,000. On your next payslip, your student loan deduction disappears without you having to do anything.

In my opinion PAYE makes this process extremely straightforward.

How it works if you are self employed

If you are self employed, student loan repayments happen through Self Assessment. You pay based on your profits for the tax year.

If your profits drop below your repayment threshold, you will:

• Owe nothing for that tax year

• Not be required to make payments

• Automatically stop repaying

The following year, if your income rises again, repayments restart.

Important

If your income drops mid year, you may still owe repayments on your previous higher income for the earlier part of the tax year. But you will not owe anything for periods where your income falls below the threshold.

Do you need to tell the Student Loans Company?

If you are employed

No. PAYE handles everything.

If you are self employed

No. You only report your income through your tax return.

If you work abroad

Yes. You must update the SLC and complete an Overseas Income Assessment Form.

If you fail to update your income when abroad, the SLC will apply a fixed monthly repayment, which can be high. In my opinion this is the only situation where you must actively contact the SLC when your income changes.

What happens if your income fluctuates throughout the year?

Student loan repayments adjust month by month (or week by week if you are paid weekly). This means:

• If you earn above the threshold one month, you pay

• If you earn below it the next month, you stop

The system is designed to be flexible. You do not have to meet the threshold consistently across the year.

Example

A worker with seasonal income earns:

• £3,000 in December

• £1,200 in January

• £2,500 in February

They will pay student loan only in December and February.

What if your employer continues taking deductions by mistake?

Sometimes payroll systems do not update instantly or an employer makes an error.

If you are under the threshold and student loan is still deducted, you can:

1. Ask payroll to correct the mistake

2. Claim a refund from the Student Loans Company once the tax year ends

You cannot claim a refund from HMRC mid year, only through the SLC later.

In my opinion it is always worth asking payroll first, as they can usually fix the issue quickly.

What if you take unpaid leave, maternity leave or reduce hours?

All these situations reduce your income and therefore reduce or stop student loan repayments.

Maternity, paternity or adoption leave

If your income drops below your threshold, repayments stop.

Unpaid leave

Repayments stop during unpaid periods.

Switching to part time work

Repayments fall in line with reduced earnings.

You do not need to call anyone. PAYE adjusts automatically.

Does interest still build up when you stop paying?

Yes. Interest continues to accrue whether you are repaying or not. However, many people will never repay their loan in full because the remaining balance is written off after a set number of years.

Write off rules depend on your plan (typically 25 to 40 years from the April after you graduate).

In my opinion this is why your remaining balance often matters far less than your income and repayment threshold.

What happens if you lose your job?

You cannot pay student loan repayments if you have no income. As soon as your income reaches zero, your repayments stop immediately.

• No penalties

• No arrears

• No action required

You do not need to contact the SLC unless you move abroad.

What if you claim benefits?

Student loan repayments are based on earned income. Benefits are not counted as income for repayment purposes, so you will not make repayments while on benefits.

Special situation: multiple jobs

If you have multiple part time jobs, PAYE treats each employer separately. This can lead to over-repayments if each employer deducts repayments based on their own threshold.

You can reclaim overpaid student loan at the end of the tax year through the SLC.

In my opinion this is one of the most common causes of incorrect deductions.

Special situation: self employed plus PAYE

If you are both employed and self employed in the same tax year, your repayments will be based on your:

• Salary from employment

• Profits from self employment

You may make repayments through PAYE and Self Assessment in the same year.

If your total income is below the threshold, you will not owe anything through Self Assessment.

Special situation: your employer uses the wrong plan

If your employer selects the wrong repayment plan, deductions may be too high or unnecessary.

You can correct this by updating your “starter checklist” or calling the Student Loans Company to confirm your plan and give your employer the correct plan type.

My opinion: why the system is designed this way

The UK student loan system was created to be:

• Affordable

• Income dependent

• Automatically adjusting

• Linked to ability to pay

In my experience this makes it far more flexible than commercial borrowing. You never have to choose between paying your rent or paying your student loan. The system adapts to your situation without penalties.

Final thoughts

You can stop paying your student loan as soon as your income drops below your repayment threshold, and the system usually adjusts automatically through PAYE or Self Assessment. You do not need to negotiate repayment terms, apply for a pause or explain your circumstances. Repayments simply stop until your income rises again.

In my opinion one of the key advantages of the UK student loan system is that it protects low earners and ensures you only contribute when you can afford to. If your income changes frequently, the system moves with you.

The only people who must actively contact the Student Loans Company when income drops are those living abroad. For everyone else, the process is automatic, fair and designed to prevent unnecessary financial pressure.