New Student Loan Repayment Thresholds for 2025/26
The government has confirmed new student loan repayment thresholds for the 2025/26 tax year, impacting borrowers across different repayment plans. These adjustments will affect how much borrowers repay each month, particularly those on Plan 1, Plan 2, Plan 3 and Plan 4 loans, whose thresholds have increased. The postgraduate loan repayment threshold remains unchanged at £21,000, meaning those with postgraduate loans will continue repaying at the same rate.
This is an important change for both employees repaying via PAYE and self-employed individuals completing self-assessment, as it affects how much will be deducted from earnings and how repayments are managed. With a new automated system for stopping overpayments introduced in 2024, borrowers should be aware of how these updates will impact them financially.
Updated Student Loan Repayment Thresholds for 2025/26
The repayment thresholds determine when borrowers must begin repaying their student loans. If your earnings are below the threshold, you do not need to make repayments. Once your income exceeds the threshold, repayments are taken at a fixed percentage of earnings above that amount.
| Plan Type | 2024/25 Threshold | 2025/26 Threshold | Deduction Rate |
|---|---|---|---|
| Plan 1 (Pre-2012 loans) | £24,990 | £26,065 | 9% of income over threshold |
| Plan 2 (Post-2012 loans) | £27,295 | £28,470 | 9% of income over threshold |
| Plan 4 (Scottish loans) | £31,395 | £32,745 | 9% of income over threshold |
| Postgraduate Loans | £21,000 | £21,000 (unchanged) | 6% of income over threshold |
This means borrowers with undergraduate loans on Plan 1, Plan 2, or Plan 4 may see lower repayments, especially if their income remains just above the previous threshold.
For example, if someone on Plan 4 earns £34,000 per year, their repayments would reduce as follows:
- 2024/25: (£34,000 – £31,395) × 9% = £234 per year
- 2025/26: (£34,000 – £32,745) × 9% = £113 per year
This halves their student loan repayment obligation, providing extra disposable income.
Key Changes to Student Loan Repayments
1. Overpayment Prevention for PAYE Borrowers
A long-standing issue with student loan repayments was that borrowers often overpaid due to a delay in updating HMRC records once their loan was fully repaid.
- Previously, repayments continued even after the full loan balance was cleared, requiring borrowers to request refunds manually from the Student Loans Company (SLC).
- From summer 2024, a new automatic reporting system ensures that SLC informs HMRC immediately when a loan is repaid.
- This means PAYE repayments will stop within the tax year, preventing unnecessary deductions from salaries.
This change eliminates the risk of overpayment for employees but does not automatically apply to self-employed individuals, who must still take action themselves.
2. Self-Assessment Borrowers Must Monitor Balances
For those who are self-employed or file a Self-Assessment tax return, repayments are calculated based on the previous tax year’s income.
This means if a loan is nearly repaid, automatic deductions may still be applied through Self-Assessment unless the borrower manually notifies the SLC.
Steps for Self-Employed Borrowers
- Monitor your student loan balance throughout the year.
- If you are close to full repayment, consider making a manual payment to clear the balance.
- Contact the SLC to request the loan repayment marker be removed from your Self-Assessment record.
Failing to do this could result in continued deductions through Self-Assessment, requiring a manual refund request.
3. Impact of Pay Freezes and National Insurance Changes
With the rise in employer National Insurance Contributions (NICs), many businesses may hold off on salary increases in 2025/26.
For employees who do not receive a pay increase, the higher repayment thresholds could mean:
- Lower student loan repayments or
- No repayment obligation at all if their earnings fall below the new threshold.
This highlights the importance of reviewing payslips and tax calculations to ensure the correct amounts are deducted.
What Borrowers Should Do Now
- Check which repayment plan applies to you and how the new thresholds affect your repayments.
- Monitor your earnings and loan balance to avoid unnecessary deductions.
- If employed, confirm that repayments stop once your loan is fully repaid under the new automated system.
- If self-employed, take proactive steps to remove the repayment marker from Self-Assessment to prevent overpayments.
- Budget accordingly if your income is close to the repayment threshold, as automatic deductions may fluctuate.
Looking Ahead: Future Changes and MTD ITSA Impact
With Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) set to begin in 2026, self-employed individuals and landlords will need to report income quarterly.
This means that student loan repayments will be calculated more frequently, requiring even closer monitoring of balances and repayment amounts.
Those who are self-employed should begin preparing for more real-time tax reporting and integrate student loan repayment tracking into their financial planning.
Final Thoughts
The increase in repayment thresholds for 2025/26 is a positive change for many borrowers, as it reduces the amount repaid each year. However, it is essential to monitor repayments closely, particularly for those nearing full repayment.
With HMRC’s automated overpayment prevention system now in place, employees will see immediate benefits, but self-employed individuals must take additional steps to avoid excess deductions.
For those with student loans, planning ahead and staying informed is key to managing repayments effectively.
Need Expert Help Managing Your Student Loan Repayments?
At Merranti Accounting, we provide professional guidance on student loan repayments, tax planning, and digital tax compliance. Contact us today to ensure you’re not overpaying and that your finances remain optimised.
