If you’re a contractor paid through an umbrella company and have a student loan, it will help to understand how your repayments work and how they impact your take-home pay.
Our team has got together to explain the key details, the repayment process, and provide a clear diagram to help you visualise how everything fits together.
Understanding student loan repayments
Your student loan repayments are calculated based on your income, not the amount you owe.
Once your income exceeds the repayment threshold set by your loan plan, you’ll start repaying a percentage of your earnings above that threshold.
Here’s a quick overview of the current thresholds (for the 2024/25 tax year):
- Plan 1: £24,990 per year (£2,082 per month or £480 per week)
- Plan 2: £27,295 per year (£2,274 per month or £524 per week)
- Plan 4: £31,395 per year (£2,616 per month or £603 per week)
- Plan 5: £25,000 per year (£2,083 per month or £480 per week)
- Postgraduate loan (PGL): £21,000 per year (£1,750 per month or £403 per week)
Once your earnings go above these thresholds, you’ll repay:
- Plan 1, Plan 2, Plan 4, and Plan 5: 9% of your income above the threshold
- Postgraduate loan: 6% of your income above the threshold
How this works when paid through an umbrella company
As an umbrella company contractor, your umbrella company will deduct your student loan repayments automatically from your pay. This is because student loan repayments are part of the Pay As You Earn (PAYE) system, which also includes tax and National Insurance contributions (NICs).
Here’s how your pay is calculated:
- Your assignment rate: This is the total amount your client pays to the umbrella company for your work.
- Umbrella company deductions: The umbrella company deducts its margin and employer costs (e.g., employer NICs, holiday pay, apprenticeship levy) to determine your gross taxable pay.
- PAYE deductions: Income tax, employee NICs, and student loan repayments are deducted from your gross taxable pay.
- Your take-home pay: What’s left after all deductions is your take-home pay.
Read our blog post about why umbrella company payslips are different to ones typically received through traditional employment.
How student loan deductions fit into your pay
Below is a diagram to illustrate the process:
Practical example
Here’s an example used by the UK Government.
Let’s say you’re on Plan 1. You have an income of £33,000 per year, and get paid £2,750 per month:
- Plan 1 threshold: £24,990
- Calculation:
£2,750 – £2,082 (your income minus Plan 1 threshold) = £668
9% of £668 = £60.12
This means the amount you’d repay each month would be £60.
Your umbrella company will deduct this amount from your pay before transferring your net pay to you.
Key takeaways
Your student loan repayments depend on your earnings and loan plan. The umbrella company handles your repayments through the PAYE system. Understanding the thresholds and repayment rates helps you better plan your finances.
If you have any questions about your student loan repayments or how your pay is calculated, don’t hesitate to reach out to your umbrella company for guidance.