Understanding first payslip deductions, Plan 5 repayment start timeline, and managing graduate salary expectations
You've graduated, secured your first proper job at £30,000, and you're mentally planning how to spend your new salary. Rent upgrade? New car? Save for a deposit? Then your first payslip arrives and reality hits: after income tax (£1,000/month), National Insurance (£350/month), and student loan (£37.50/month), your £2,500 gross monthly salary becomes £1,112.50 net. Welcome to graduate life.
Many graduates are genuinely shocked when student loan deductions begin. During university, the loans felt abstract—numbers on a Student Finance England portal you rarely checked. Suddenly they're real deductions reducing your take-home pay every single month. Understanding exactly when repayments start, how PAYE deductions work, and what your actual take-home will be helps you budget realistically and avoid the common mistake of overcommitting financially based on gross salary.
This guide explains the repayment start date rules, breaks down your first payslip line by line, shows you how to calculate exact deductions, and provides a reality check on take-home pay at different graduate salary levels. If you're about to start your first graduate job—or you've already started and are confused by the deductions—this explains everything.
The transition from student to graduate employee brings an immediate collision with the UK tax system. Most students have only worked part-time during university, often earning below the tax threshold. Your first graduate job typically crosses multiple deduction thresholds simultaneously.
Combined impact: Your marginal rate between £25k-£50k is 41% (20% + 12% + 9%). For every £1,000 salary increase in this range, you take home only £590. This is why that £30k job offer feels disappointing when the first payslip arrives.
£30,000 Annual Salary Breakdown
Reality check: That £2,500 monthly salary you negotiated? You actually receive £1,998.20. The difference (£501.80 or 20% of gross) goes to tax, NI, and student loans. This is before pension contributions, which would reduce take-home further.
The UK graduate starting salary average is ~£27,000-£30,000. This sounds reasonable until you realize:
Plan 5 loans (for students who started in September 2023 or later) have specific rules about when repayments begin. Understanding the timing helps you anticipate when deductions will appear.
Repayments begin the April after you finish your course OR when you start earning above £25,000, whichever is later.
This means you get a grace period between finishing university and April of the following year where you don't make repayments even if earning above the threshold. This gives new graduates breathing room to establish themselves financially.
Example 1: Standard Graduate Timeline
This is the most common scenario. You get ~9 months of full salary (minus just tax and NI) before student loan deductions start.
Example 2: Start Job After April
Because you started the job after the April following graduation, repayments begin immediately since you're already past the grace period.
Example 3: Low Starting Salary
If you're earning below £25k when April comes, you don't start repaying. Deductions only begin once you cross the threshold, regardless of when that happens.
Example 4: Gap Year Before Employment
Gap years don't delay your repayment start date—it's still the April after you finish. But if you're not earning, there's nothing to deduct.
Your repayment start date is based on when you complete or leave your course, not when you graduate:
Important: Student Finance England tracks your course end date automatically through your university. You don't need to notify them you've finished—they know.
You don't need to tell your employer about student loans. HMRC informs them automatically:
This happens seamlessly. Your payslip will show the deduction starting from the correct month.
Student loan repayments through PAYE (Pay As You Earn) happen automatically. Your employer calculates and deducts the amount, sending it directly to HMRC, who forward it to Student Finance England. You never see the money—it comes straight out of your gross pay.
Employer Receives Tax Code
HMRC provides your employer with your tax code, which includes information about student loan plan type (Plan 5 for recent graduates).
Monthly Calculation
Payroll system calculates: (Your gross salary for this pay period - £25,000/12) × 9% = Student loan deduction
Deduction Applied
The calculated amount is deducted from your gross pay alongside tax and National Insurance. You see "SL" or "Student Loan" on your payslip.
Payment to HMRC
Your employer sends the deducted amount to HMRC along with your tax and NI. This happens monthly or quarterly depending on employer size.
HMRC Forwards to Student Finance England
HMRC allocates the payment to your student loan account. You can see it credited (with 2-3 month delay) in your SFE online account.
Look for these lines on your monthly payslip:
Some payslips show "SL", others show "Student Loan" or "SL5" (indicating Plan 5). The line might also show your year-to-date total deducted.
Q: Can I opt out of PAYE deductions?
A: No. If you're employed and earning above £25k, deductions are mandatory. The only way to avoid them is to earn below threshold or be self-employed (where you pay through Self Assessment instead).
Q: What if I change jobs mid-year?
A: Your new employer picks up where the old one left off. Your P45 (leaving certificate) shows year-to-date deductions. New employer continues deducting based on your annual salary.
Q: Can I pay extra to clear the loan faster?
A: Yes, but only if you'll definitely repay the full balance. You can make voluntary payments to Student Finance England. But for most graduates heading for write-off, extra payments are wasted money.
Q: Do bonuses get deducted?
A: Yes. Any income above £25k gets the 9% deduction, including bonuses, commission, and overtime. That £5k Christmas bonus? You'll pay £450 in student loan deductions on it.
Understanding the exact calculation helps you budget accurately and verify your payslip deductions are correct.
Monthly Student Loan Payment =
(Annual Salary - £25,000) × 9% ÷ 12
Or for monthly: (Monthly Salary - £2,083.33) × 9%
| Annual Salary | Above Threshold | Annual Deduction | Monthly Deduction | Daily Cost |
|---|---|---|---|---|
| £25,000 | £0 | £0 | £0 | £0 |
| £26,000 | £1,000 | £90 | £7.50 | £0.25 |
| £28,000 | £3,000 | £270 | £22.50 | £0.74 |
| £30,000 | £5,000 | £450 | £37.50 | £1.23 |
| £35,000 | £10,000 | £900 | £75.00 | £2.47 |
| £40,000 | £15,000 | £1,350 | £112.50 | £3.70 |
| £50,000 | £25,000 | £2,250 | £187.50 | £6.16 |
| £60,000 | £35,000 | £3,150 | £262.50 | £8.63 |
Key observation: Every £1,000 salary increase adds £7.50/month in student loan deductions. This is on top of the £60/month in additional income tax and NI you'll pay.
To quickly estimate your monthly student loan payment:
Or even simpler: Take the amount above £25k, divide by 10, then divide by 12. Close enough for budgeting.
If you get a £3,000 raise from £30k to £33k:
This is why raises feel disappointing. Your marginal rate is 41%, so £1,000 gross raise = £590 net increase.
Understanding the gap between gross and net salary helps you budget realistically and avoid overcommitting to rent, car payments, or other fixed costs based on inflated expectations.
| Annual Salary | Monthly Gross | All Deductions | Monthly Net | % Take-Home |
|---|---|---|---|---|
| £25,000 | £2,083 | -£387 | £1,696 | 81% |
| £28,000 | £2,333 | -£484 | £1,849 | 79% |
| £30,000 | £2,500 | -£502 | £1,998 | 80% |
| £35,000 | £2,917 | -£631 | £2,286 | 78% |
| £40,000 | £3,333 | -£760 | £2,573 | 77% |
| £50,000 | £4,167 | -£1,018 | £3,149 | 76% |
Financial advisors often recommend spending no more than 30% of income on rent. For graduates with student loans, this is based on net income, not gross.
£30,000 Graduate in London:
£35,000 Graduate Outside London:
This is why London-based graduates on typical salaries struggle. The combination of high rent, student loan deductions, and tax means most spend 40-50%+ of net income on housing alone.
Monthly Net Income: £1,998
This budget is TIGHT and still £200 short. London graduates often supplement with parental support, credit cards, or reduce quality of life (cheaper food, no social life, skip holidays).
Many graduates have incorrect beliefs about student loan repayments that lead to poor financial decisions or unnecessary stress.
Misconception 1: "I should pay off my loan early"
Reality: For most graduates, voluntary overpayments are wasted money. Under Plan 5, if you're unlikely to repay the full balance before 40-year write-off, extra payments just give the government money you'd never have repaid anyway.
When it makes sense: Only if you're a very high earner (£70k+) on track to fully repay, AND you have no other debts, AND you've already maximized pension contributions. For 70%+ of graduates, voluntary overpayment is financial mistake.
Misconception 2: "My credit score will suffer from student debt"
Reality: Student loans don't appear on your credit file and don't affect your credit score. They're completely separate from commercial credit.
However, mortgage lenders DO consider student loan repayments when calculating affordability. That £112/month deduction at £40k salary reduces how much you can borrow.
Misconception 3: "I don't need to worry about it—it's automatically sorted"
Reality: While PAYE deductions are automatic, you should still check:
Misconception 4: "If I work abroad, I don't have to repay"
Reality: You're still obligated to repay even if living abroad. You must notify Student Finance England of overseas employment and make payments through their international repayment system.
Enforcement is difficult, but UK loans stay on your record. If you return to UK employment, all missed payments become due immediately.
Misconception 5: "My employer pays this, not me"
Reality: Your employer deducts it from YOUR earnings. It's not an additional employer cost like employer NI contributions—it's money that would otherwise be in your pocket.
This matters for salary negotiations. When you negotiate a £30k salary, you'll take home £1,998/month. The student loan is your cost, not the employer's.
Errors in student loan deductions happen. You might be deducted when earning below threshold, deducted too much, or not deducted when you should be. Here's how to verify and fix issues.
Error: Deducted when earning below £25k
Cause: Your employer has wrong tax code or HMRC hasn't updated your threshold
Fix: Contact your payroll department and HMRC. Provide evidence of salary. Request refund of overpaid amounts. Can take 6-12 weeks to correct.
Error: Deducted wrong percentage (e.g., 12% instead of 9%)
Cause: Wrong loan plan assigned (Plan 1/2/4 instead of Plan 5)
Fix: Contact Student Finance England immediately to confirm your correct plan. They'll notify HMRC to update records. Overpayments will be refunded.
Error: Not being deducted despite earning £30k+
Cause: Employer doesn't have your correct NI number or HMRC hasn't flagged your account for deductions
Fix: Don't worry—this will catch up. Once corrected, you'll owe the backdated amount, but Student Finance England usually accepts payment plan rather than lump sum.
Error: Payments not showing on SFE account
Cause: Normal 2-3 month delay between PAYE deduction and SFE account update
Fix: If it's been 4+ months and still not showing, contact Student Finance England with copies of payslips showing deductions. They'll investigate with HMRC.
If you've been overcharged:
Successfully managing money as a graduate requires adjusting to significant regular deductions and avoiding lifestyle inflation.
Based on net monthly income:
Note: These percentages are difficult to achieve on £25k-£30k salaries in expensive cities. Many graduates spend 40-50% on housing out of necessity.
Not all graduates immediately earn above the repayment threshold. Some start on lower salaries, work part-time, or face unemployment. Here's what happens to your loan in these scenarios.
During periods of zero repayment:
Example: Graduate with £50k debt, earns £22k for 3 years. Makes zero repayments. Balance grows to ~£56k with interest. Then gets promoted to £30k, repayments begin at £37.50/month. Nothing wrong with this—it's how the system works.
Almost never. If you're earning below £25k, you have more urgent financial priorities:
Making voluntary student loan payments when earning £22k is financial mismanagement. That money is better spent building financial security or investing in career growth.
Under Plan 5, repayments begin the April after you finish your course or when you earn over £25,000, whichever is later. Your employer deducts 9% of income above £25k automatically via PAYE. That £30,000 salary becomes £1,998 monthly take-home after tax, NI, and student loan deductions. Budget based on net income, verify your deductions are correct, and remember: most graduates never repay the full balance anyway. The deductions feel significant now but become background noise as your salary grows.
Check your first payslip carefully, understand the deductions, and budget realistically from day one.
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.