How repayments work
Student loan repayments are 9% of pay above the plan threshold, calculated on the same earnings basis as National Insurance, per pay period and non cumulatively. Postgraduate loans are 6% above their own threshold, and an employee can repay an undergraduate plan and a postgraduate loan at the same time, 15% combined above the respective thresholds. The deduction appears on the payslip, goes to HMRC with your PAYE payment and is reported on the FPS.
The 2026/27 thresholds
Plan 1 (pre 2012 loans in England and Wales, plus Northern Ireland): £26,900 a year. Plan 2 (England and Wales, 2012 to 2023 starters): £29,385. Plan 4 (Scottish borrowers): £33,795. Plan 5 (English courses from August 2023): £25,000. Postgraduate loans: £21,000. Monthly equivalents matter for payroll: Plan 5, for example, bites at £2,083 a month, so a bonus month can trigger a deduction for someone usually below the line, which is correct and self corrects nothing, there are no refunds for in year spikes via payroll.
Identifying the right plan
A P45 carries only a Y in the student loan box, so a new starter with a P45 still needs to be asked their plan type, which the starter checklist does. HMRC then confirms with an SL1 (or PGL1) start notice through your software or PAYE account, which you must action from the first payday it applies, and no later than 42 days. If you genuinely do not know the plan, default to Plan 1. Wrong plan deductions are the classic error: Plan 2 applied to a Plan 5 borrower under deducts, the reverse over deducts and upsets your employee.
Start and stop notices
Only 3 things legitimately change a deduction: an SL1/PGL1 start notice, an SL2/PGL2 stop notice, or the employee leaving. Employees close to repaying can arrange direct debit for the final months with the Student Loans Company to avoid overpaying; you keep deducting until the SL2 arrives. Ignore employee requests to stop without a notice, however confident they sound, because you carry the liability if deductions were due.
Special cases
Deductions apply to bonuses, commission and overtime because the calculation follows NIable pay. Salary sacrifice reduces the pay the calculation sees, so sacrificing into a pension genuinely lowers student loan repayments. Directors on annual NI earnings periods calculate student loans annually too. Off payroll workers caught by IR35 do not have student loans deducted by the fee payer, they settle through Self Assessment, as do employees with significant other income.
Getting it right
Include the plan question in your onboarding pack, action HMRC notices weekly, and reconcile deductions whenever an employee queries their balance against their Student Loans Company statement. Mistakes are fiddly to unwind across tax years, so prevention beats cure. Our starters and leavers guide covers the wider onboarding flow, and our payroll service processes every HMRC notice automatically.
Frequently asked questions
What are the student loan thresholds for 2026/27?
Plan 1: £26,900. Plan 2: £29,385. Plan 4 (Scottish): £33,795. Plan 5: £25,000. Repayments are 9% of income above the threshold. Postgraduate loans are 6% above £21,000, and can run alongside an undergraduate plan.
How do I know which student loan plan an employee is on?
From their P45 you only learn that deductions apply, not the plan. The starter checklist asks the plan type directly, and HMRC sends an SL1 or PGL1 start notice confirming it. If nothing is known, use Plan 1 until HMRC says otherwise.
When do I stop deducting a student loan?
Only when HMRC sends an SL2 or PGL2 stop notice, or when the employee leaves. Never stop just because the employee says the loan is repaid; refunds flow back to them from the Student Loans Company.