“Can student loans be paid via salary sacrifice?”
To answer the core question:
No - an employee cannot make student loan repayments directly via salary sacrifice in the UK. Repayments are statutory deductions collected through PAYE, based on the employee’s income above the repayment threshold. They are not voluntary contributions and cannot be “sacrificed” in the way pensions, childcare, or cycle-to-work schemes can.
The opportunity with salary sacrifice
While you can’t pay student loans via salary sacrifice, it is possible to reduce monthly repayments indirectly using certain schemes.
The most common example is pension salary sacrifice (also known as pension salary exchange). Under this arrangement, an employee agrees to sacrifice part of their salary in exchange for an increased employer pension contribution. Because this reduces the employee’s contractual salary, the income figure used to calculate student loan repayments is also lower.
As a result, employees with student loans may see slightly lower monthly repayments. This happens because most UK student loans are repaid at 9% of income above a set threshold, and repayments are only required for a fixed period (often around 30 years) before any remaining balance is written off. Salary sacrifice reduces the income used in this calculation, which can lower the amount deducted each month.
Common questions employers may hear
Does this mean employees are avoiding their student loan?
No. Repayments are still calculated and deducted automatically through payroll. Salary sacrifice simply reduces the income figure used in the repayment calculation.
Should employers change their salary sacrifice schemes because of student loans?
No. Salary sacrifice schemes are primarily designed to improve tax efficiency and boost long-term savings (particularly pensions). Any impact on student loan repayments is simply a side effect of how the repayment calculation works.
Do employers need to do anything differently in payroll?
No. Payroll will continue to calculate student loan deductions based on the employee’s post-sacrifice salary, as normal.
Final thought
The key takeaway is simple: student loan repayments cannot be made through salary sacrifice, but pension salary sacrifice can slightly reduce the repayments employees make because it lowers the salary used in the calculation.