Are plan 4 student loans repaid from net or gross income?

[ziipidydodah]

This feels like a stupid question but I can’t find an answer.

gov.uk gives this example:

Example
You’re on Plan 4 and have an income of £36,000 a year, meaning you get paid £3,000 each month.
Calculation:
£3,000 – £2,616 (your income minus the Plan 4 threshold) = £384
9% of £384 = £34.56
This means the amount you’d repay each month would be £34.56

BUT - is that £34.56 taken from gross or net income? I would assume it’s taken from net, but I can’t find confirmation.

It’s gross -

How much you repay depends on your income - the amount you earn (including things like bonuses and overtime) before tax and other deductions.

Sorry - just to add, it’s calculated using gross figures, what it’s deducted from doesn’t matter.

Sorry I should have been more clear. I know it is calculated from gross figures.

The question is what it is deducted from, which does matter. If you deduct £34 from net you end up with a smaller pay packet than if you deduct it from gross.

It doesn’t matter, you don’t get the gross figure anyway.

it’s gross figure - taxes etc. - student loan

or -

net figure - student loan

Of course it makes a difference

Of course it matters 😕. Whether something is deducted pre or post tax makes a difference to the ultimate net pay.

According to Google its 9 percent of pre tax earnings

both her student loan and her tax / NI will be calculated on her gross figure. Maybe that’s clearer. You don’t pay less tax because you have a student loan.

You don’t pay less tax because your student loan is deducted. Everything is calculated on your gross pay.

Well you do actually..

But anyway, the answer is that it comes out of pre taxed income.

gross

If that’s the case then it’s a fantastic tax vehicle for future high earners (take out the loan and repay pretax rather than allowing high asset parents to pay - retain the parents assets that would have been used to instead use as eg house deposit). But it doesn’t seem fair to future middle earners.

Future low earners wouldn’t be affected because they are unlikely to repay their full loan, but middle earners would pay more (net impact) to completely repay their loan than high earners would.

Incidentally I say this as a high earning parent (not a stealth brag).

It would be more worthwhile to get DD to take out loans, which she then repays pretax, than it would be to pay fees and living costs directly from my post tax income. Instead I will put the equivalent amount into savings for her.

(Going to take some actual tax advice first - these are just Saturday night MN musings.)

The figure is calculated on gross salary as people have said. But the payment isn't deducted from gross salary otherwise less tax would be paid as OP has pointed out, and this isn't the case.

Apologies I was wrong. You pay a percentage of gross income but it comes out of net income.

I think the OPs question boils down to whether you pay less tax with a student loan (excluding the SL payment) than without.

If you put figures into https://listentotaxman.com/ with and without the SL payment, you can see how much tax is paid in both cases to see if there difference.