Managing Student Loan Repayments When You're Self-Employed

Having a student loan can be a significant financial responsibility, especially if you're self-employed. If you're navigating how to manage your student loan repayments, this guide will help you understand how to handle your repayments, when they begin, and how to report them to HMRC.

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Table of Contents

1. Repaying Your Student Loan When You’re Self-Employed

2. Student Loan Repayment Plans

   • 2.1 Plan 1

   • 2.2 Plan 2

   • 2.3 Postgraduate Loan

3. Student Loan Repayment Thresholds

   • 3.1 Example of Plan 1 Repayments

   • 3.2 Example of Postgraduate and Plan 2 Loan Repayments

4. What Happens If Your Income Changes

5. How to Repay Your Student Loan on Your Self-Assessment Tax Return

6. Making Extra Payments

7. When Are Student Loans Written Off

   • 7.1 Plan 1 Write-Off

   • 7.2 Plan 2 Write-Off

   • 7.3 Postgraduate Loan Write-Off

8. How Student Loan Interest is Calculated

   • 8.1 Plan 1 Interest

   • 8.2 Plan 2 Interest

   • 8.3 Postgraduate Loan Interest

1. Repaying Your Student Loan When You’re Self-Employed

As a self-employed individual, you'll manage your student loan repayments through your self-assessment tax return. Once you log into your .GOV account with your HMRC user ID, you can complete your tax return and report all your income for the year. Your repayment amount will be added to your tax bill based on your income.

If you are both employed and self-employed, make sure to check whether your student loan repayments are being handled through your PAYE salary to avoid overpayment. This choice is usually made when you complete your employee starter form.

 

2. Student Loan Repayment Plans

HMRC offers three student loan repayment plans. Your repayment plan depends on when you started your undergraduate course and the type of course. If you have multiple loans, you might be on more than one plan, so review your paperwork carefully. The plans are:

• Plan 1

• Plan 2

• Postgraduate Loan

2.1 Plan 1

Plan 1 applies to:

• English or Welsh students who began an undergraduate course before 1 September 2012

• Scottish or Northern Irish students who started an undergraduate or postgraduate course from 1 September 1998

• EU students who started an undergraduate course in England or Wales between 1 September 1998 and 1 September 2012

• EU students who started an undergraduate or postgraduate course in Scotland or Northern Ireland after 1 September 1998

2.2 Plan 2

Plan 2 applies to:

• English or Welsh students who started an undergraduate course on or after 1 September 2012

• EU students who began an undergraduate course in England or Wales on or after 1 September 2012

• Anyone who took out an advanced learner loan on or after 1 August 2013

2.3 Postgraduate Loan

Postgraduate Loan rules apply if you:

• Took out a Postgraduate Master’s Loan on or after 1 August 2016

• Took out a Postgraduate Doctoral Loan on or after 1 August 2018

• Started a postgraduate course on or after 1 August 2016

Repayment rates are:

• 9% of income above the threshold for Plan 1 and Plan 2

• 6% of income above the threshold for the Postgraduate Loan

 

3. Student Loan Repayment Thresholds

Repayment thresholds apply equally to both employed and self-employed individuals. Repayments start from April (the beginning of the new tax year) following your graduation, provided your income exceeds the thresholds. For example, if you graduated in July 2020, repayments start in April 2021.

As a self-employed person, you’ll report your student loan on your self-assessment tax return, due by 31 January 2022 for the 2021/2022 tax year.

You must pay a percentage of your income above the HMRC-set thresholds:

Income Threshold 2020/2021Income Threshold 2021/2022Repayment Rate

Plan 1: £19,390£19,8959%

Plan 2: £26,575£27,2959%

Postgraduate Loan: £21,000£21,0006%

If you have both Plan 1 or Plan 2 loans and a Postgraduate Loan, you’ll repay a combined rate of 15% (9% + 6%) of income above the thresholds.

3.1 Example of Plan 1 Repayments

If you earn £30,000 for the 2020/2021 tax year, with a Plan 1 loan, you’ll repay £954.90 (£30,000 – £19,390 x 9%).

3.2 Example of Postgraduate Loan and Plan 2 Repayments

If you earn £35,000 for the 2020/2021 tax year and have both a Postgraduate and Plan 2 loan, you’ll repay £758.25 (£35,000 – £26,575 x 9%) for Plan 2 and £840 (£35,000 – £21,000 x 6%) for the Postgraduate Loan.

 

4. What Happens If Your Income Changes

As a self-employed person, your repayments are based on your total annual income, so fluctuations in your income will not affect your repayment amount for that year. If your income decreases significantly, you may apply to reduce your payment on account due by 31 July.

If you're employed and your income drops below the threshold, you can request a refund of overpaid student loan repayments by contacting the Student Loans Company at 0300 100 0611.

 

5. How to Repay Your Student Loan on Your Self-Assessment Tax Return

Complete the student loan section of your self-assessment tax return if the Student Loans Company (SLC) has indicated you need to make repayments. This section is located in Section 2 ‘Tell Us About You’ of your tax return.

If you have less than two years remaining on your student loan, there is a specific box on your tax return to indicate this. Checking this box will ensure that HMRC calculates your repayments to avoid overpayment.

After submitting your tax return and paying your tax, HMRC will forward your student loan repayments to the SLC, which will update your loan account accordingly.

 

6. Making Extra Payments

You can make extra payments to pay off your student loan faster once your income exceeds the threshold. Be aware that these extra payments are non-refundable, so ensure you are comfortable with this decision and that you plan to clear the loan completely, as any remaining balance could be written off.

 

7. When Are Student Loans Written Off

Student loans can be written off depending on your plan type, location, and loan start date:

7.1 Plan 1 Write-Off

For England, Northern Ireland, and Wales:

• Write-off occurs when you turn 65 if you took out the loan in the academic year 2005/2006 or earlier

• 25 years after the April you were first due to repay if you took out the loan in the academic year 2006/2007 or later

7.2 Plan 2 Write-Off

Plan 2 loans are written off 30 years after the April you were first due to repay.

7.3 Postgraduate Loan Write-Off

Postgraduate loans are written off 30 years after the April you were first due to repay if you are a student from England or Wales.

 

8. How Student Loan Interest is Calculated

Interest on your student loan depends on your plan and income for Plan 2.

8.1 Plan 1 Interest

Interest on Plan 1 loans is currently set at 1.1%.

8.2 Plan 2 Interest

While studying, interest on Plan 2 loans is 5.6%, which is the retail price index (currently 2.6%) plus 3%. After you finish studying, interest depends on your income:

• £26,575 or less – RPI (currently 2.6%)

• £26,576 and over – RPI (currently 2.6%) plus up to 3%

8.3 Postgraduate Loan Interest

Interest on Postgraduate Loans is currently 5.6%, calculated as the retail price index (currently 2.6%) plus 3%.

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