I have been told that if you are paying back your student loan on the new PAYE system you can claim tax exemption status on your student loan payments? Is this right, can anyone explain how it works if it is?

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I have never heard of this. If you Google student loans/uk several websites come up. There is nothing on any of them that I can find that indicates that you get tax relief on student loan repayments, although it is true that Government websites aren't always up-to-date.
If your assertion were true, it wouldn't be fair to people who are self-employed if it only applied to PAYE. The tax office doesn't get involved in student loan deductions. That is organised between employer, and student loan company.

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