Monthly vs Annual Student Loan Thresholds UK

How the two thresholds work

Every plan's threshold exists in two forms, monthly and annual. Which one applies to you depends entirely on how you are taxed.

If you are employed and paid through PAYE, your employer checks your gross pay for that month against the monthly threshold. Each pay period is assessed on its own; your employer does not look at your cumulative earnings for the year.

If you are self-employed, HMRC works out your repayment through Self Assessment at the end of the tax year. Your total annual profit is compared with the annual threshold, and you pay 9% on any excess.

The monthly threshold is the annual threshold divided by 12, rounded down to the whole pound (£29,385 divided by 12 is £2,448.75, published as £2,448). The two figures are therefore consistent: earning exactly the annual threshold, spread evenly across twelve months, produces no deduction in any month.

Monthly thresholds by plan (2026/27)

Your employer uses the monthly threshold each time they run your payslip. If your gross pay for the period exceeds the figure below, the plan's rate is deducted on the difference. Weekly-paid staff are tested against the weekly figure in the same way.

Plan 5 has the lowest monthly threshold at £2,083, equivalent to a £25,000 salary. Plan 4 (Scottish graduates) has the highest at £2,816. If your gross monthly pay falls between those two figures, your plan decides whether anything is deducted at all.

The annual threshold and Self Assessment

Self-employed borrowers, and anyone who completes a Self Assessment return, are assessed against the annual figure instead. HMRC compares your total income for the year with your plan's annual threshold: Plan 1 £26,900, Plan 2 £29,385, Plan 4 £33,795, Plan 5 £25,000 and Postgraduate Loan £21,000.

The annual figure is also what a refund claim is judged against. Whether monthly deductions were taken or not, if your total income for the tax year came in below your annual threshold, nothing was actually due. The full annual table, with how each figure is uprated from year to year, is in the thresholds guide linked at the top of this page.

Period 1 (non-cumulative) basis

PAYE student loan deductions run on what HMRC calls the “Period 1” or non-cumulative basis. It is the detail that surprises most employees.

Your employer does not keep a running total of your earnings for the year. Each pay period is treated as if it were the first of the year: your gross pay for that single month is compared with the monthly threshold, and the deduction is worked out on that month's figures alone.

This is why graduates on variable pay, commission or bonuses often see student loan deductions appear out of nowhere. The monthly threshold is the trigger, and each month resets to zero.

Variable income and bonuses

Variable pay is the most common reason for an unexpected deduction. A bonus, commission payment or block of overtime can push a single month's gross pay above the monthly threshold, triggering a 9% deduction on the excess even if every other month of the year is below the line.

Your total income for the year, £28,000 with the bonus included, is still below the £29,385 annual threshold. The £237.18 was never due, and you can reclaim it as covered in the reconciliation section below.

The same applies to commission months, overtime and any other top-up to your regular salary. Your employer cannot see the whole year when they run your payslip; they only see this month's gross pay.

Self-employment

If you are self-employed you avoid the Period 1 problem entirely. HMRC works out your student loan repayment through Self Assessment using your total profit for the tax year.

Your profit is compared with the annual threshold. If you exceed it, 9% is due on the difference, and the figure appears on your Self Assessment calculation alongside income tax and National Insurance.

• You pay the student loan amount with your tax bill by 31 January, or in two instalments (January and July) through payments on account.
• Allowable business expenses reduce your profit and therefore reduce, or remove, your student loan liability.
• If your profit swings from year to year, your repayment swings with it. A loss year produces no student loan liability at all.

If you have both employed and self-employed income, your employer deducts through PAYE and HMRC then assesses your combined income through Self Assessment, adjusting for any difference. You may owe more or receive a credit depending on the total.

Year-end reconciliation and refunds

Because PAYE uses a non-cumulative monthly basis, you can overpay during a tax year. If your total income for the year turns out to be below the annual threshold, every monthly deduction taken was an overpayment.

How to claim a refund

There are two routes:

1. Self Assessment return: declare your income for the year. If the total is below the annual threshold, HMRC works out the overpayment and refunds it, typically within six weeks of the tax year end on 5 April.
2. Contact the Student Loans Company: if you do not complete Self Assessment, contact SLC after the tax year ends with your P60 and payslips as evidence. SLC confirms the overpayment and arranges the refund.

Refunds are paid to you directly rather than knocked off your loan balance. Deductions that were never due are returned as cash, not credited to the loan.

Frequently asked questions