Plan 2 loans: When can I opt out of PAYE repayments?
You cannot normally pick and choose how you repay your Plan 2 income-contingent student loan. If you are an employee, then Pay As You Earn (PAYE) deductions are mandatory in most cases.
But if you are getting close to full repayment, it is recommended you switch to direct debit repayments to avoid paying too much through PAYE and then having to get a refund from the Student Loan Company (SLC).
This is because PAYE deductions are calculated at 9% of pay above £25,725 (for the tax year 2019/20) but generally your SLC account is not updated with repayments made until after the end of each tax year, when employers file end-of-year returns. Although it is planned that these updates will be made on a ‘real time’ basis from April 2019 so that these overpayments should not occur it is still recommended to pay the SLC directly during the final years of loan repayments.
The direct debit facility allows you to opt out of PAYE deductions up to two years prior to anticipated full repayment.
The SLC should monitor borrowers' accounts with a view to identifying if you are getting close to full repayment and contact you to offer the switch to direct debit. But if your income fluctuates or if there is a delay in HMRC passing repayment information to the SLC, it could be difficult for the SLC to determine when you might be nearing full repayment.
In these situations, you can contact the SLC and, on production of evidence such as your P60 and payslips, you may be able to agree with them a move to direct debit.
If you do not keep up your direct debit repayments, you will go back into PAYE repayment.
Watch out if you change jobs
Where you have switched to direct debit repayments and then move jobs, you must take care when providing new starter information so that you do not pay twice – by both direct debit and through PAYE. This means that if you have agreed with the SLC to pay by direct debit, you must notify your employer that you are making direct monthly repayments through an agreement with the SLC.