Redundancy Payments and Student Loan Repayments: A Growing Concern for UK Graduates

Recent cases highlight a frustrating issue for UK graduates facing redundancy: lump-sum redundancy payments are being treated as income by the Student Loans Company (SLC), leading to unexpected and substantial student loan repayments. This situation is leaving many newly unemployed individuals struggling to cover essential living expenses.

The Case of Ben Turner

Ben Turner, a 27-year-old former equine vet from Billericay, Essex, received a £11,674 redundancy payment in January 2026 after being made redundant from Catley Cross, part of IVC Evidensia Catley Cross Vets. Still, his subsequent payslip revealed an £837 deduction for student loan repayments. Prior to his redundancy, Turner earned £40,000 annually and paid approximately £80 per month towards his student loan. The redundancy payout, equivalent to three months’ salary, was treated as regular income by the SLC, triggering the large repayment demand.

Turner expressed his frustration, stating he felt “punished for being made redundant” and that the funds were urgently needed for rent, and food. He has contacted both his former employer and the SLC, but neither has offered a resolution.

A Widespread Problem

Turner’s experience is not isolated. The Office for National Statistics reports that over 400,000 people aged 25 to 34 were made redundant in the year leading up to October 2025, suggesting many may face similar financial burdens.

The Changing Rules

Until April 2018, HM Revenue &amp. Customs (HMRC) treated termination payments as tax-free “gifts,” and the SLC followed suit. Currently, most pay in lieu of notice is classified as post-employment notice pay and is subject to income tax and student loan deductions.

How Student Loan Repayments Perform

Graduates repay 9% of their income above a certain threshold, which varies depending on when and where they studied. For those on Plan 2 loans (students who began university between 2012 and July 2023), the repayment threshold is £28,470, rising to £29,385 in April 2026. Repayments are calculated monthly, based on 9% of earnings exceeding £2,372.50.

The SLC’s refund rules are based on annual income; refunds are only issued if total yearly income falls below the threshold. Because Turner’s redundancy occurred mid-tax year, his earnings had already surpassed the £28,470 threshold.

The Broader Financial Impact

Turner graduated from the University of Cambridge in 2023 with £55,000 in tuition fee debt, which has now grown to £72,738 due to accruing interest. He believes the unexpected deduction exacerbates the issue, as there is little incentive to overpay when interest continues to accumulate.

Employer and SLC Responses

IVC Evidensia acknowledged Turner’s situation and stated that its payroll team followed HMRC guidelines, which limit their responsibility for refunds to the SLC. The SLC confirmed that repayments are deducted based on a pro-rated threshold and that refunds are possible if annual income falls below the threshold.

As Turner’s case demonstrates, navigating the interplay between redundancy payments, income tax, and student loan repayments can be complex and financially challenging for UK graduates.