The SL Marker: Undergraduate Student Loans
When it comes to repaying your student loan, most people assume it just happens automatically through their payslip. For many, that's true. But if you earn income beyond basic employment, you might find yourself dealing with two completely different repayment systems: PAYE (Pay As You Earn) and Self Assessment. And confusingly, these two systems can charge you different amounts for the same income.
Understanding the difference between PAYE and Self Assessment for student loans isn't just academic. It's the difference between predictable monthly deductions and surprise tax bills in January. It's knowing whether you'll overpay through one system and underpay through another. And critically, it's understanding why some people end up paying twice, or not at all, depending on how their income is structured.
If you have any income beyond standard employment (rental property, freelance work, dividends, or even just a high salary requiring Self Assessment), you need to understand how both systems work and which one will cost you more.
PAYE is the system most people know. Your employer receives your tax code from HMRC, sees the SL or PGL markers, and automatically deducts student loan repayments alongside tax and National Insurance. It happens every time you're paid, whether that's weekly, monthly, or another schedule.
The calculation is straightforward. Your employer takes your gross pay for that period, subtracts the monthly or weekly threshold for your loan plan, and applies either 9% (undergraduate) or 6% (postgraduate) to the remainder. This happens in isolation each pay period.
This £20.29 comes out automatically. You never see it, never have to calculate it, and never have to send it anywhere. Your employer sends it directly to HMRC, who forward it to the Student Loans Company. From your perspective, it just reduces your take-home pay.
The key feature of PAYE is immediacy. The deduction happens when you're paid. There's no delay, no year-end calculation, and no bill arriving months later. What you see on your payslip is what you pay.
Self Assessment is completely different. Instead of deductions happening automatically through your employer, you calculate your total income for the entire tax year, work out what you owe in student loan repayments, and pay it directly to HMRC. This typically happens months after you've actually earned the money.
Self Assessment becomes necessary when you have income that isn't taxed through PAYE. This includes:
When you complete your Self Assessment tax return, there's a specific section for student loan repayments. You enter your total income for the year, and HMRC's system calculates your repayment based on your loan plan. The calculation uses your total income for the entire tax year, not month-by-month figures.
The amount you owe gets added to your tax bill. So on 31 January (the deadline for Self Assessment), you're not just paying income tax. You're also paying any student loan repayments that weren't already collected through PAYE.
The biggest practical difference between the two systems is timing. PAYE deductions happen when you earn the money. Self Assessment repayments happen up to 10 months later.
Someone who starts freelancing in April 2025:
That's nearly a year between earning the money and paying the student loan on it.
For many people, this creates problems. The money has already been spent, and now there's a bill for hundreds or thousands of pounds that they weren't expecting.
PAYE never creates this issue. The deduction happens immediately, so you never have a chance to spend money that actually needs to go toward your student loan. Your budget adjusts naturally because you only ever see your post-deduction income.
This timing difference also affects how the money feels psychologically. PAYE deductions are invisible. Most people don't think about them. Self Assessment payments are very visible. You have to actively transfer money to HMRC, and you feel every pound leaving your account.
Many people find themselves paying through both PAYE and Self Assessment simultaneously. This happens when you have employment income (which uses PAYE) plus other income (which requires Self Assessment).
When you're in both systems, here's what happens:
Your employer continues deducting student loan repayments through PAYE based on your employment income. Then, at year-end, HMRC calculates your total repayment based on ALL your income. They subtract what you've already paid through PAYE, and any shortfall becomes a Self Assessment bill.
Sarah earns £30,000 from employment and £8,000 from freelance work (total £38,000). Her Plan 2 threshold is £27,295.
Sarah's employer has deducted £243.45 during the year. But based on her total income, she actually owes £963.45. So her Self Assessment bill includes an extra £720 for student loans. This surprises many people. They see student loan deductions on their payslip all year and assume they're covered. Then January arrives with a four-figure bill.
While underpayment through multiple income streams is common, overpayment creates its own issues. This typically happens when you have multiple PAYE sources or when your income varies significantly through the year.
Tom has two jobs. Job A pays £1,800 monthly and Job B pays £1,200 monthly. Each employer applies their own threshold when calculating student loan deductions.
Alternatively, if both employers have been given BR SL codes (basic rate with student loan), they might both be deducting as if his entire pay from each job is above the threshold. Now he's overpaying every month.
The Self Assessment system should correct both situations. In the first case, it adds the shortfall to Tom's bill. In the second, it should trigger a refund. But in practice, many people don't realize they've overpaid and never claim the money back.
When people compare PAYE and Self Assessment, they often find they pay more through Self Assessment. This isn't because the system charges different rates. It's because of how income is measured and what counts toward the threshold.
If you earn £25,000 from your job, you're below the Plan 2 threshold of £27,295. Your employer deducts nothing.
If you have that same £25,000 employment income plus £10,000 rental income, your total is £35,000. Now you're £7,705 above the threshold, owing £693.45 in student loan repayments through Self Assessment.
Investment income particularly catches people out. Dividends don't have PAYE deductions. If you receive £5,000 in dividends, no student loan deduction happens when you receive the money. But come Self Assessment time, that £5,000 gets added to your total income and can trigger or increase student loan repayments.
Our student loan calculator help you model these scenarios and understand what you'll actually owe across both systems.
PAYE calculates your student loan monthly (or weekly, if you're paid weekly). Self Assessment calculates annually. This creates different results when your income fluctuates.
Emma earns nothing for six months, then £36,000 over the next six months:
Emma has overpaid by £1,228.29 through PAYE and should receive a refund.
Emma has overpaid by £1,228.29 through PAYE because each high-earning month was calculated independently, without averaging across the zero-income months. Self Assessment's annual calculation reveals the overpayment, and she should receive a refund. This is why people with variable income often prefer Self Assessment, even though it means dealing with tax returns. The annual calculation better reflects their actual situation.
If your Self Assessment bill exceeds £1,000, HMRC requires "payments on account" for the following year. This is where Self Assessment becomes particularly expensive.
Payments on account work like this: HMRC assumes you'll earn similar amounts next year, so they require you to prepay half your estimated bill by 31 January and the other half by 31 July.
Sarah owed £720 in student loan repayments plus tax through Self Assessment:
In just six months, Sarah pays £1,440 even though only £720 relates to income she's actually earned and received.
This bunching of payments causes serious cash flow problems. Many people can't afford to pay nearly double their normal bill. And if their income drops in the second year, they've overpaid and have to wait months for a refund.
Student loan repayments through Self Assessment are included in these advance payments. So you're not just prepaying tax. You're prepaying student loans on income you haven't earned yet.
In pure monetary terms, neither system should cost more than the other. The repayment calculation is the same: 9% of income above the threshold for undergraduate loans, 6% for postgraduate. Whether that calculation happens monthly through PAYE or annually through Self Assessment, the mathematics should produce the same result.
But in practice, most people pay more through Self Assessment because:
Money paid months after earning it feels more expensive than automatic deductions. You've already spent or allocated that money in your mental accounting.
Payments on account mean paying for next year's repayments before you've earned the income. PAYE never requires this.
A £1,000+ bill arriving in January is psychologically harder than £80 disappearing from your payslip each month, even though the annual total is similar.
If you can't pay your Self Assessment bill on time, HMRC charges interest. That genuinely costs you more than PAYE, where late payment isn't possible.
Missing the 31 January deadline triggers automatic penalties. First penalty is £100, then £10 per day after three months, then percentage-based penalties. These are real additional costs that PAYE employment never faces.
At year-end, HMRC reconciles what you've paid through PAYE against what you owe based on total income. This reconciliation should ensure you've paid the right amount overall, with any overpayment refunded and any underpayment billed.
In theory, this is fair and accurate. In practice, the system often gets it wrong because:
Always check the reconciliation carefully. Look at your Self Assessment calculation and verify that your PAYE deductions have been properly credited. If they haven't, you'll be charged twice on the same income.
Generally, you can't choose between PAYE and Self Assessment for student loans. The system you use depends on your income sources:
However, there are some strategic decisions available:
If you control when you invoice or receive payment, spreading income across tax years can sometimes reduce or eliminate Self Assessment requirements. Earning £900 self-employment income in one tax year keeps you below the £1,000 trading allowance.
Dividends from limited companies trigger Self Assessment, but salary doesn't (if below £100,000). Restructuring how you extract profit from a business can shift you back to PAYE-only.
Higher expenses on rental or self-employment income can reduce your taxable profit below the £2,500 threshold that triggers mandatory Self Assessment. With lower reportable income, you stay in PAYE-only territory.
These aren't ways to avoid paying student loans you legitimately owe. They're ways to avoid the administrative burden and cash flow impact of Self Assessment while ensuring you still pay the right amount through PAYE.
If your non-employment income crosses the threshold requiring Self Assessment, you must register by 5 October after the tax year ends. Many people don't realize this applies to them until they receive penalties for non-registration.
The Self Assessment form has specific boxes for student loan repayments. Some people complete their return but skip this section, thinking PAYE has covered it. Then they receive adjusted bills months later.
If you've paid student loans through PAYE, these should reduce your Self Assessment bill. But if the information hasn't transferred properly, you need to manually claim these credits. Otherwise you pay twice.
PAYE calculates monthly. If you have three high months and nine low months, PAYE might overcharge you. You need to file Self Assessment to claim the refund, even if you don't have non-employment income.
Given how complex the interaction between PAYE and Self Assessment can be, planning ahead is essential. Our PAYE vs Self Assessment Repayment Calculator shows exactly what you'll pay through each system based on your specific income mix.
If you're facing a Self Assessment bill including student loans, our Self Assessment Student Loan Balancing Calculator helps you understand how the balancing payment is calculated and how much to budget for January.
Neither PAYE nor Self Assessment is inherently better for student loan repayments. PAYE offers simplicity and automatic deductions but only works for standard employment. Self Assessment handles complex income situations but creates cash flow challenges and administrative burden.
If you're in both systems, the key is accurate record-keeping. Track your PAYE deductions throughout the year so you can verify your Self Assessment calculation. Budget for the January payment by setting aside approximately 9% of your non-employment income as you earn it. And use the reconciliation process to ensure you're not paying more than you owe.
Understanding both systems means you can plan effectively, avoid nasty surprises, and ensure you're only paying what you genuinely owe based on your total income. The system might be complicated, but it doesn't have to be mysterious.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.