If you are considering taking out a student loan or you have recently graduated with a student loan, you are likely considering the implications of financial funding and student loan deductions that will be, or are, being taken from your income. SMH are here to help you understand student finance options, repayment plans and student loan deductions.
What are student load deductions?
This is very common question considered by prospective or former students. Student loan deductions is the sum of money taken by HMRC towards repaying student loans. The value of your student loan deduction depends on your loan plan type (plans ranging from 1-5 as well as postgraduate loan types) as well as your income salary. As of February 2026, student loan repayment thresholds for each plan are as follows:
| Plan Type | Yearly income threshold (Gross Income) | Percentage Deducted From Income |
| Plan 1 | £26,065 | 9% |
| Plan 2 | £28,470 | 9% |
| Plan 4 | £32,745 | 9% |
| Plan 5 | £25,000 | 9% |
| Post Graduate | £21,000 | 6% |
Are student loan repayments tax deductible?
The simple answer is, no, student loans are not a tax deductible expense for current or former students or any family members seeking to offer financial aid towards student loan repayments
Should you avoid student loans?
Student loans can be intimidating for many people as they are one of the largest forms of debt that the average person will take out. As the next academic year approaches, student finance is once again a major concern for many students, families and parents. There are a few considerations to make when considering taking out student loans for education, including:
Interests rates:
Loans carry ‘interest’, usually at a rate linked to RPI inflation in March of each year. The rate levied can vary based on whether the student is still on their course and, if not, their annual income earnings, similar to the repayment thresholds above. According the gov.uk guidance in 2026, the interest rate for Plan 1 income-contingent repayments of student loans is set at RPI (3.2%), or the Bank Base Rate (currently 4%) + 1% (5%), whichever is lower. For Plan 2 loans, the income contingent student loans vary between RPI (3.2%) and RPI (3.2%) +3% (6.2%) depending on your circumstances. High interest rates are now often seen as a deterring factor against student loans
Student loan deductions:
Loan repayments only begin once income exceeds a certain level. For example, for graduates in England who started their course between 2012 and 2022 are considered to be on a plan 2 student loans, in which the threshold in February 2026 is £28,470. The repayment rate is 9% of income above the threshold. This means that the former student will effectively pay the equivalent of an extra 9% on income tax rates. If a graduate’s income never reaches the threshold, then they repay nothing. On the other hand, graduates that move into high paying roles may find that they are able to repay the student loan at a much faster rate, reducing the accrued interest Student loan write off UK window: Unless the loan has been fully repaid earlier, as of 2026, student debt will be written off at the end of a fixed term of 25-30 years depending on your student loan plan type or circumstances.
Should you aim to repay student loans early?
All of these variables, and governments’ propensity to tweak components such as the income threshold, make the calculation of how much loan any student will repay at best a highly contingent estimate. The important point is that repaying all or part of a loan early, or even not drawing a loan initially, may represent an unnecessary gift to the government. Even if you are in a position to do so, ‘paying down’ the loan does not actually impact on the amount owed, which is pegged to the earnings threshold rather than the size of the loan. The only certainty is that the person making the payment will not be able to get the money back. For parents or guardians, If you are considering helping a student/graduate child or grandchild to reduce their student debt, think carefully and, if necessary, take advice before acting. If in a position to offer financial support, it may be a wiser investment to offer help with another financial obstacle, such as the deposit for a first home.
Student loan calculator – HMRC
As with all financial planning decisions, knowledge is power. If you are considering taking out student loans for yourself or you are considering offering financial aid to a loved one, use the student loan calculator from HMRC to get a realistic idea of how much funding they may have access to. This calculator can estimate either tuition and maintenance loans, or tuition fee loans alone.
Get Help With Financial Planning
To discuss your financial planning, contact our Sheffield based Financial Advisers on 01142 664 432 or email us at info@smh.group.
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