Informational · Pensions · Student Loans · UK
8 minute read · Updated February 2026
Student loans have been getting a lot of attention recently. With repayment thresholds frozen rather than rising with earnings, more graduates are being dragged into repayments — and as salaries increase, a greater proportion of income goes straight to the Student Loans Company. For many people it feels like a tax that never quite goes away.
One practical way to reduce what you repay each month is to increase your pension contribution through salary sacrifice. Most people know that salary sacrifice saves income tax and National Insurance — fewer realise it also reduces your student loan repayment at the same time. It is one of the most overlooked financial benefits available to UK graduates, and once you see the numbers, it is hard to ignore.
This article explains exactly how it works, shows the maths for different salary and contribution levels, and covers every repayment plan so you can see the saving that applies to your situation.
Student loan repayments in the UK are calculated as a percentage of your income above a threshold — not your total salary. Crucially, they are calculated on your gross taxable pay after salary sacrifice, not your headline salary.
When you use salary sacrifice for your pension, your employer takes your pension contribution directly from your gross pay before PAYE is applied. This reduces your taxable income — and since student loan repayments are calculated on that same taxable income figure, your repayment also falls.
In plain terms: the salary your student loan repayment is based on is lower when you use salary sacrifice. The more you sacrifice, the more your repayment reduces.
Your repayment plan depends on when and where you studied. The table below shows the 2026/27 thresholds and rates for each plan.
| Plan | Who it applies to | 2026/27 threshold | Rate above threshold |
|---|---|---|---|
| Plan 1 | Started before Sept 2012 (England/Wales); NI students | £26,900/yr | 9% |
| Plan 2 | Started Sept 2012–July 2023 (England/Wales) | £29,385/yr | 9% |
| Plan 4 | Scottish students (any start date) | £33,795/yr | 9% |
| Plan 5 | Started from Aug 2023 (England) | £25,000/yr | 9% |
| Postgraduate | Postgraduate Masters or Doctoral loans | £21,000/yr | 6% |
If you have both a Plan 2 undergraduate and a Postgraduate loan, repayments are calculated separately on each and deducted together. Our calculator handles this with the "Plan 2 + PG" option.
The following examples use Plan 2 (the most common plan) with a 5% salary sacrifice pension contribution. The same principle applies to every plan — the numbers just differ.
Enter your salary, select your student loan plan and choose salary sacrifice — the calculator shows your repayment before and after in real time.
See my saving →The student loan saving is on top of everything else salary sacrifice already does. Using the £40,000 / 5% example above, here is the complete picture of what that single pension decision actually saves:
| Saving | Monthly | Annual |
|---|---|---|
| Income tax saved (20%) | £33.33 | £400 |
| Employee NI saved (8%) | £13.33 | £160 |
| Student loan saving (Plan 2) | £15.00 | £180 |
| Total saving | £61.67 | £740 |
| Gross contribution into pension | £167 | £2,000 |
| True net cost | £105 | £1,260 |
That means putting £2,000/year into your pension via salary sacrifice actually costs you just £1,260 after all the savings are accounted for — and you have £2,000 growing in your pension pot. The effective rate of return before a single investment decision is already substantial.
No — only salary sacrifice. Standard pension contributions made via relief at source (most auto-enrolment schemes and personal pensions) do not reduce your student loan repayment, because they are deducted after PAYE is calculated rather than before.
The key question to ask your employer or check in your payslip is whether your pension comes off your pay before tax is calculated (salary sacrifice) or after (relief at source). If you are unsure, our guide explains the difference in full: What Is Salary Sacrifice and How Much Does It Save?
Plan 5 applies to English students who started from August 2023. It has a lower threshold of £25,000 and a longer repayment term of 40 years, which means more graduates will be above the threshold and repaying for longer. The salary sacrifice saving works in exactly the same way — and because the threshold is lower, more people on modest salaries will see a meaningful reduction.
For a Plan 5 graduate earning £28,000 and sacrificing 5% (£1,400/year), their salary after sacrifice is £26,600 — meaning they only repay on £1,600 above the threshold rather than £3,000. That halves their monthly repayment, saving around £11/month (£135/year) from the pension contribution alone.
Postgraduate loan repayments use a lower threshold of £21,000 and a 6% rate. Many postgraduate borrowers are also in professional jobs using salary sacrifice, and the saving on the postgraduate element compounds on top of any undergraduate repayment saving.
If you have both loans, use the "Plan 2 + PG" option in our calculator to see the combined saving across both simultaneously.
For most people in most circumstances, no. Salary sacrifice is straightforwardly more efficient than standard pension contributions when student loan repayments are in the picture. There are a small number of edge cases worth being aware of:
Salary sacrifice reduces your gross pay before student loan repayments are calculated — meaning every pound you contribute to your pension via sacrifice also reduces your student loan repayment by 9p (Plans 1, 2, 4, 5) or 6p (Postgraduate) for every pound above the threshold. Combined with income tax and NI savings, it is the most efficient way to contribute to a pension available to UK employees. Use our calculator to see the exact figures for your salary, plan and contribution level.
Enter your details, select salary sacrifice and your student loan plan. The calculator shows every saving in one place.
Open the calculator →