Got a student loan? Bizarrely, working extra shifts or getting a bonus this Christmas could COST you cash

So bizarrely, in some cases if you work more you could end up with less take-home pay. Here's how that works in practice... 

To give you an example of how the system can make working extra shifts or getting a Christmas bonus a curse rather than a blessing, let's imagine I'm a student from England who went to university between 2013 and 2016.

I'm a 'Plan 2' borrower, so my annual repayment threshold is £25,000. I earn £24,000/yr (so £2,000/mth before tax) in my job as an IT consultant, and so usually I don't have to worry about paying back my student loan. Happy days – sorry Student Loans Company.

Now let's look at two different scenarios over the Christmas period.

• In scenario one I absolutely smash the extra shifts. Loads of companies are finding their IT software's kaput over Christmas, and I'm needed to work on Christmas Day, Boxing Day etc to save everyone's bacon. I rake in the overtime payments and also get a huge bonus from my boss for generally being an all-round legend, meaning my pay before tax in December is £3,020!
  
  Unfortunately, this pushes me over the £2,083.33 monthly repayment threshold, by £936.67. I pay back 9% on this, so £84.30, via PAYE.
  
  Assuming I don't do any extra shifts in the coming months, by the end of the financial year in April I can see I've earned £25,020 over the past year. Logically, you might think I should have only paid 9% of the amount I've earned over the £25,000 annual threshold towards my loan... so £1.80. But I paid £84.30 at Christmas because of the extra shifts, and because I earned over the annual threshold – albeit only by £20 – I can't claim ANYTHING back.
  
  
• In scenario two, I earn £20 less – but end up £60 better off... Again I do a lot of extra shifts over Christmas. Again, loads of companies find their IT software's broken, and I'm needed to work over the Christmas break. But one day I've had enough and leave a little earlier than in scenario one.
  
  My boss is still pretty chuffed and I've worked up a decent chunk of overtime, but I get a slightly smaller monthly salary than in the first scenario – let's say, er, £2,999.99. I pay 9% on the amount over the £2,083.33 monthly repayment threshold, so £82.50.
  
  However, assuming again I do no more extra shifts, by April I've earned £24,999.99 over the entire financial year. Unlike in the scenario above, I'm below the annual repayment threshold, so can claim my £82.50 student loan repayment back. 

So, strange as it sounds...

But even if I'm worse off in the first scenario, at least I'm repaying my loan, right?

This seems the logical response to the maths outlined above, but in practice, it doesn't fully wash.

As Martin explains in his Should I repay my student loan? guide, student loans are unlike any other form of borrowing. Repayments operate far more like a tax than a debt – so in reality, it's often better having the cash in your pocket.

With interest rates for those who started uni in or after 2012 as high as 6.3%, you might assume repaying early is a boon. Yet the stats show the huge majority (over 80%) of these university leavers are unlikely to clear their loan in full in the 30 years before it's wiped – so paying money towards the loan when you don't need to is essentially wasting cash.

For those who started university before that, as the amount borrowed and the interest rates are lower, you are more likely to clear all the debt before the loan's wiped. But even then, with interest rates much lower, it's arguable you're better off with the cash in your pocket now.