Student Loan Repayment for Contractors: Plans 1–5 Explained

If you are a contractor with a student loan, understanding how repayment works across different contracting structures is essential. Unlike permanent employees whose repayments are handled automatically through payroll, contractors face a more complex picture that depends on their IR35 status, whether they use an umbrella company, and which student loan plan they are on.

This guide covers the 2026/27 repayment thresholds for Plans 1–5, explains the 9% rate, and shows exactly how repayment differs inside IR35 versus outside IR35, with a worked example for a £500/day contractor on Plan 2.

The Five Student Loan Plans at a Glance

The UK has four active student loan plans, each with its own repayment threshold. All plans use the same 9% repayment rate on income above the threshold, but the threshold varies significantly:

Plan	Who It Applies To	Annual Threshold (2026/27)	Rate
Plan 1	Students who started before 1 Sept 2012 (England/Wales/NI)	£24,375	9%
Plan 2	Students who started 1 Sept 2012 – 31 July 2023 (England/Wales)	£27,295	9%
Plan 4	Scottish students (any start date after 1998)	£31,395	9%
Plan 5	English students who started on or after 1 Aug 2023	£25,000	9%

Plan 4 has the highest threshold at £31,395, reflecting the Scottish Government's different approach to student finance. Plan 5, introduced for the post-2023 cohort, sits between Plan 1 and Plan 2 at £25,000. If you have a postgraduate master's or doctoral loan, that is a separate plan with its own 6% rate and £21,000 threshold, and it is repaid alongside your undergraduate plan if applicable.

How the 9% Repayment Rate Works

Repayment is calculated as 9% of your income above the relevant plan threshold. You only repay when your income exceeds the threshold in a given pay period (weekly, monthly, or annually depending on your employment type). If your income falls below the threshold in any period, repayments pause — there is no minimum payment.

The threshold is pro-rated for pay periods. For example, on Plan 2 (£27,295/year):

• Monthly threshold: £27,295 ÷ 12 = £2,274.58
• Weekly threshold: £27,295 ÷ 52 = £524.90

If your monthly salary is £5,000, your repayment is 9% of (£5,000 – £2,274.58) = £245.29 for that month. Crucially, student loan repayments are calculated on your employment income only — not on dividends, capital gains, or other investment income.

Repayment Inside IR35: PAYE Deduction

When you work inside IR35 — either through a deemed employer (the end client) or an umbrella company — you are treated as an employee for tax purposes. Your student loan repayment is deducted automatically through PAYE, just like a permanent employee.

Your umbrella company or payroll provider will:

1. Determine which plan you are on from your starter checklist (HMRC form) or student loan declaration.
2. Apply the 9% rate to your gross employment income above the relevant weekly or monthly threshold in each pay run.
3. Report and remit the repayment to HMRC through RTI (Real Time Information) payroll submissions.
4. Show the deduction as a separate line item on your payslip alongside income tax and National Insurance.

The repayment is deducted from your gross salary after pension contributions but before you receive your net pay. This means the repayment reduces your take-home pay directly. Your umbrella margin, employer NI, and apprenticeship levy are all deducted first from the contract value, then income tax, employee NI, and finally student loan repayment applies to whatever salary remains.

Repayment Outside IR35: Self Assessment

If you operate through your own limited company outside IR35, the picture is entirely different. Student loan repayment is calculated on your salary from the company only — not on the dividends you draw from retained profits.

Most outside IR35 contractors take a minimal salary, typically up to the personal allowance of £12,570, and draw the rest of their income as dividends. Since £12,570 is below every student loan threshold — even the lowest (Plan 1 at £24,375) — your salary would normally attract no student loan repayment.

There are two scenarios where this changes:

• You take a salary above the threshold: If you pay yourself a salary that exceeds your plan's threshold, the excess is subject to the 9% student loan repayment. You must report and pay this through your Self Assessment tax return.
• You have other employment income: If you also have a part-time PAYE job alongside your limited company contracting, that income counts toward the threshold too, and repayments may be due on the combined total.

When you submit your Self Assessment tax return, HMRC calculates your student loan repayment based on the employment income declared. You then pay the amount due alongside your income tax and Class 4 National Insurance. The deadline is 31 January following the end of the tax year.

Worked Example: £500/Day Contractor on Plan 2

Let us work through a concrete example. A contractor is on Plan 2 (threshold £27,295), working 5 days per week, 46 weeks per year, at £500 per day. We compare inside IR35 (via umbrella) versus outside IR35 (limited company).

The outside IR35 contractor takes home £61,217, which is £9,549 more than the inside IR35 contractor's £51,668, and they pay nothing toward their student loan in the process. This illustrates why contracting through a limited company outside IR35 can be significantly more tax-efficient for student loan purposes — though the trade-off is that the outstanding loan balance continues to accrue interest.

Interaction with Other Deductions

Student loan repayment does not exist in isolation. Several other deductions interact with or affect your student loan calculation:

Pension Contributions

Salary sacrifice pension contributions reduce your gross employment income for student loan purposes. In the example above, a 5% pension sacrifice reduced Plan 2 repayment by 9% × £4,847 = £436 per year. The higher your pension contribution, the less you pay toward your student loan — but your net take-home also decreases.

Income Tax and National Insurance

Student loan repayment is calculated on the same gross income as income tax and employee NI for inside IR35 and umbrella contractors. However, unlike income tax and NI, student loan repayment has no upper earnings limit — the 9% applies to every pound above the threshold, regardless of how high your income goes. There is no "ceiling" on student loan repayments the way there is with employee NI (which drops to 2% above £50,270).

Employer NI and Apprenticeship Levy

These are deducted from the contract value before salary is calculated, so they indirectly reduce the amount subject to student loan repayment. In the inside IR35 example, £16,327 in employer NI and £575 in apprenticeship levy were deducted from the £115,000 contract value before the salary was determined, which in turn reduced the student loan repayment calculation by roughly £1,522 (9% × £16,902).

Multiple Loans

If you have both an undergraduate loan (Plan 1/2/4/5) and a postgraduate loan, you repay both simultaneously. The postgraduate loan is repaid at 6% above a separate threshold of £21,000. Both deductions are applied to the same employment income and both appear on your payslip. This can result in a combined deduction rate of 15% (9% + 6%) on income above the higher threshold.

Scottish Tax Rates

If you work in Scotland, your income tax is calculated using Scottish rates, but your student loan plan is determined by where you started your course — not where you work. A Scottish-domiciled contractor on Plan 4 has the highest threshold (£31,395) and therefore generally pays less student loan repayment than a Plan 2 contractor with the same income, all else being equal.

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