Student loan deductions: plan types, thresholds and start notices

A new starter says they have a student loan. Nobody asks which plan, payroll picks the one it always picks, and nine months later HMRC sends a start notice naming a different plan. The deduction was wrong every month in between, you cannot correct it in arrears, and the employee has to chase the Student Loans Company for the difference. The whole thing turns on a single unasked question.

This article sets out what payroll actually has to get right: which plans exist, who falls on each, the thresholds and rates for the 2026 to 2027 tax year, how you learn the plan type, why the sum is done on the pay period rather than the year, and the only circumstances in which you may stop. It covers the position in the United Kingdom, and the plan types do not map neatly onto the four nations. It is general information rather than tax or financial advice.

Most of these errors start at the point of hire, not in the payroll run. See how New Dynamics onboarding keeps a new starter's checklist items assigned and visible until each one is actually answered, so a missing plan type is a task somebody owns rather than a gap nobody notices.

What a student loan deduction is

A student loan deduction is a repayment of a government student loan, collected through PAYE alongside Income Tax and National Insurance. The employer is the collection agent, not the lender. HMRC passes what you report to the Student Loans Company, which holds the balance and the interest.

The employer's job has three parts and stops there: work out the right earnings figure, apply the right plan or loan type, and report the deduction. On the earnings figure, HMRC's student loan and postgraduate loan repayment guidance for employers is specific: "Use the same gross pay amount that you would use to work out your employer's secondary Class 1 National Insurance contributions."

You do not work out the amount by hand. GOV.UK's guidance for employers taking on a new employee says: "Record their answer in your payroll software. You do not need to calculate their loan recovery repayments, your payroll software will do this for you." The risk is not arithmetic. It is feeding the software the wrong plan type.

For the wider picture of what else comes off a payslip, our post on payroll deductions covers which deductions are compulsory and which need written agreement, and our post on pay stub deductions reads a payslip line by line.

The plan types, and who is on each

There are four student loan plans in repayment, numbered 1, 2, 4 and 5, plus a separate postgraduate loan. There is no Plan 3. The numbering is historical, which is why it looks arbitrary.

GOV.UK's guide to which repayment plan you're on sets out the allocation by funding body and course start date:

• Student Finance England. A course started before 1 September 2012 is Plan 1. A course started between 1 September 2012 and 31 July 2023 is Plan 2 for an undergraduate course or a PGCE. A course started on or after 1 August 2023 is Plan 5 for an undergraduate course, a PGCE, an Advanced Learner Loan or finance taken through the Lifelong Learning Entitlement. A Higher Education Short Course Loan is Plan 2.
• Student Finance Wales. Before 1 September 2012 is Plan 1. On or after that date, an undergraduate course or a PGCE is Plan 2.
• Student Awards Agency Scotland. GOV.UK states: "You're on Plan 4, whether you studied an undergraduate course or a postgraduate course."
• Student Finance Northern Ireland. GOV.UK states: "You're on Plan 1, whether you studied an undergraduate course or a postgraduate course."
• Postgraduate loans. A postgraduate master's or doctoral loan sits on its own postgraduate loan plan, in England and in Wales.

Two things follow that catch employers out. Plan 4 is not "the Scottish plan" in the sense of where someone lives or works now. It follows who funded the course, so a Plan 4 borrower can be sitting in an office in Bristol. And the same page states: "You cannot choose your repayment plan. If you have more than one loan, you could be on different plans." Neither the employer nor the employee has any discretion here.

Student loan deduction thresholds and rates for 2026 to 2027

HMRC's rates and thresholds for employers 2026 to 2027 states that, unless otherwise stated, the figures apply from 6 April 2026 to 5 April 2027. Under the heading "Student loan and postgraduate loan recovery" it publishes these, labelled "2026 to 2027 rate":

The employer guidance repeats the same annual, monthly and weekly figures and gives the rates in words: "Employees repay 9% of the amount they earn over the threshold for Plan 1, 2, 4 and 5" and "Employees repay 6% of the amount they earn over the threshold for postgraduate loan."

One detail worth knowing before somebody queries a penny. The employee-facing page on how much you repay rounds the monthly and weekly thresholds down to whole pounds, so it shows the Plan 2 monthly threshold as £2,448 where the employer guidance and the rates table show £2,448.75. Payroll uses the employer figures. The employee is reading a rounded version of the same rule, and the finished deduction is itself rounded down to whole pounds.

GOV.UK's page on when you start repaying states plainly that "the threshold amounts change on 6 April every year", so a procedure that quotes a figure without naming its tax year will quietly go out of date. For the other payroll figures that move on the same date, see our HR statistics hub.

How you know which plan to apply

HMRC lists the triggers for starting a deduction. Deductions go on your Full Payment Submission if any of the following apply, in the employer guidance's own words: your new employee's P45 shows deductions should continue; your new employee tells you they're repaying a student loan; your new employee fills in a starter checklist showing they have a student loan and or postgraduate loan; HMRC sends you a SL1 start notice, which "will tell you which plan type to use"; HMRC sends you a PGL1 start notice, which "will tell you they have a postgraduate loan"; or you receive a generic notification service reminder.

Three of those six tell you only that a loan exists. They do not tell you which plan. For each of them the guidance adds the same instruction: "ask your employee to confirm their plan or loan type, or both".

The starter checklist is the tidiest route, because it asks the question in a form the employee signs. GOV.UK tells employees that the employer will use it to "work out your student or postgraduate loan deductions, if you have one", and the employer guidance says "the checklist should tell you which plan or loan type, or both to use". Note that a P45 is not a substitute. GOV.UK's new employee guidance says to ask the question "even if your employee has a P45 from their last job", because the P45 carries a loan indicator and no plan number.

If the employee does not know, GOV.UK's route is for them to sign in to their repayment account and check, or contact the Student Loans Company. Our post on base salary covers the rest of the offer and pay data you should be collecting at the same moment.

When a new starter says they have a loan and no notice has arrived

GOV.UK answers this directly, and the answer changed in April 2026. From the employer guidance: "If they cannot tell you, use Plan 5 in your payroll software until you get a student loan start notice (SL1). Defaulting to Plan 5 is only available for Plan 1, Plan 2 or Plan 4 loans."

So you do not wait, and you do not guess at Plan 2 because most of your workforce is on it. You start on Plan 5, which has the lowest annual threshold of the four at £25,000, and you switch when the SL1 tells you otherwise. The page's own update log records that the default to Plan 5 was added on 6 April 2026, so check the date on any procedure you wrote earlier.

Two related rules sit alongside it. Where the employee says they are on more than one plan and you do not know which is in repayment, "start deductions for the plan with the lowest recovery threshold until you get a SL1". And where a start notice arrives for someone who "claims never to have had a student loan", you "start making deductions in line with the start notice and continue doing so unless HMRC tells you otherwise". The notice governs, not the conversation.

One thing you must not do when a plan type turns out to have been wrong: "Do not make any deductions in arrears." The guidance repeats that for late P45s as well. The employee recovers an overpayment from the Student Loans Company, not from you.

The deduction is worked out on the pay period, not the year

The annual threshold is a headline. The deduction is calculated on each pay period against that period's threshold. GOV.UK's employee page is explicit: "You'll make a repayment if your income goes over the weekly or monthly threshold for your plan (for example, if you're paid a bonus or overtime)."

For anyone with irregular pay, that is the whole story. Take someone on Plan 2 paid £2,000 a month, £24,000 a year, comfortably under every annual threshold. In one month they receive a £4,000 bonus, so pay for that period is £6,000. That is above the Plan 2 monthly threshold of £2,448.75, so a deduction is due: 9% of £3,551.25, which is £319 after rounding down to whole pounds. Their pay for the year is still £28,000, under the £29,385 Plan 2 annual threshold, and they will have repaid £319 anyway. Those figures are an example, not a published case.

GOV.UK's page on getting a refund describes exactly this and puts the remedy on the borrower: "If your annual salary is less than this, your employer may still have deducted repayments. For example, if you were paid a bonus that put you over the monthly threshold for your plan, they would deduct a repayment for that month." The borrower can ask for a refund, but only afterwards: "You will not get a refund for any repayments until after SLC have confirmed your annual income with HMRC. This will not happen until after the end of the tax year. You can only ask for a refund for tax years that have ended."

Payroll's job here is not to prevent the deduction, which would be wrong, but to be able to explain it. Anyone paying commission, overtime, seasonal hours or annual bonuses should expect the question and have the answer ready before the payslips go out.

Note one gap in what is published. That refund page lists yearly thresholds for Plan 1, Plan 2, Plan 4 and the postgraduate loan, and gives no Plan 5 figure. We could not find an official page stating the below-threshold refund position for Plan 5 in those terms, so point a Plan 5 borrower at the Student Loans Company rather than quote a figure GOV.UK has not published there.

Changing someone from weekly to monthly pay

A change of pay interval needs an adjustment, not a fresh start. GOV.UK's own worked example: an employee on Plan 1 paid £700 weekly moves to monthly pay of £2,800 in the third week of the month. Weeks 1 and 2 each produce a £16 deduction, week 3 brings no pay, and in week 4 the deduction on £2,800 is £50, so because £32 has already been taken, "the amount now due to be deducted is £18".

A postgraduate loan runs at the same time as a plan deduction

A postgraduate loan is not an alternative to Plan 1, 2, 4 or 5. It is an addition. The employer guidance states: "Your employee may be liable to repay a postgraduate loan at the same time as a student loan (Plan 1 or Plan 2 or Plan 4 or Plan 5)." The new employee guidance draws the line more sharply: "You can only deduct one student loan plan type at a time, however you can deduct a postgraduate loan at the same time as a student loan."

So a payslip can legitimately carry two loan lines: 6% above £21,000 a year for the postgraduate loan and 9% above the relevant plan threshold for the other. GOV.UK's worked example on the how much you repay page shows someone with a postgraduate loan and a Plan 2 loan on £30,000 a year repaying £45 and £4 in the same month, £49 in total. They are separate sums against separate thresholds.

Where someone has more than one plan but no postgraduate loan, only one deduction is taken. GOV.UK: "You'll repay 9% of your income over the lowest threshold out of the plan types you have" and "You'll only have a single repayment taken each time you get paid, even if you're paying towards more than one loan." GOV.UK describes a monthly cap on how much of that single repayment goes towards the plan with the lowest threshold, with anything above the cap going towards the other loan. None of that allocation is payroll's to work out.

More than one job

The rule here surprises people, because it is the opposite of how Income Tax treats a second job. The employer guidance says: "If an employee has more than one job you should ignore earnings from the other employer."

The employee page says the same from the other side: "You'll only make repayments from jobs where you're paid over the threshold for your plan type, not your combined income." Its example is a Plan 1 borrower paid £1,000 a month in one job and £800 in another, who makes no repayment at all because neither amount exceeds the £2,241 monthly threshold.

Two jobs with the same employer are different. Then you "follow the aggregate rules if they apply. Otherwise treat both employments separately."

When student loan deductions stop

There are only two reasons to stop, and an employee asking is not one of them. The employer guidance: stop when "you receive an SL2 or PGL2 stop notice from HMRC", or when "in exceptional circumstances, HMRC ask you to stop making deductions", in which case "they'll tell you in writing, or by phone and then in writing".

On timing: "Stop making deductions from the first available payday after the deduction stop date shown on the notice. The 'first available payday' is the first payday on which it's practical to apply that notice."

Then the sentence to put in your payroll procedure: "You cannot stop making deductions because your employee asks you to. Your employee should ask for a refund if they think they have overpaid their loan." The new employee guidance states it as an instruction: "Do not stop making deductions if an employee asks you to."

That feels harsh when an employee is certain they have cleared the balance, so explain it rather than just refusing. GOV.UK's refund page states that HMRC "will tell your employer to stop taking repayments from your salary when you have repaid your loan in full", and acknowledges the lag: "It can take around 4 weeks for salary deductions to stop. This means you may pay back more than you owe." Its own suggestion is that the borrower switches to Direct Debit in the final year. That is a conversation to have, not a reason for payroll to act early.

Three other stopping points are worth knowing. A generic notification service message may tell you to stop for someone subject to the off payroll working rules or receiving only an occupational pension, and "you must stop taking these deductions from the next available pay date". After a death, "do not make any student loan and or postgraduate loan (PGL) deductions from any payments made after the date of death", because earnings paid after death attract no Class 1 National Insurance. And when someone leaves, the P45 carries the indicator forward: enter "Y" in box 5 where deductions should continue, "even if your employee has not earned enough to make student loan or postgraduate loan repayments".

What to keep, and for how long

HMRC requires you to keep, for at least three years after the end of the tax year they relate to, "all wages relating to the calculation and deduction of student loan or postgraduate loan repayments", other documents relating to that calculation, and the "SL1 and PGL1 start notices and SL2 and PGL2 stop notices" themselves. Deduction amounts go in the appropriate box on the Full Payment Submission and the P60, in whole pounds only.

The stop notices matter most, because once one has arrived you must not refund anything: "If you've received a SL2 or PGL2 stop notice you must not make any refund. Instead, your employee should contact the Student Loans Company." Our post on the payroll process covers where these records sit in the monthly cycle.

Frequently asked questions

What are student loan deductions?

Student loan deductions are repayments of a government student loan collected through PAYE by the employer, alongside Income Tax and National Insurance. The employer applies the plan or loan type HMRC has notified, reports the amount on the Full Payment Submission, and pays it over with the PAYE bill. HMRC passes the information to the Student Loans Company, which holds the balance.

What is the student loan deduction rate?

Nine per cent of earnings above the threshold for Plan 1, Plan 2, Plan 4 and Plan 5, and six per cent of earnings above the threshold for a postgraduate loan. HMRC's employer guidance states that employees "repay 9% of the amount they earn over the threshold for Plan 1, 2, 4 and 5" and "6% of the amount they earn over the threshold for postgraduate loan". The rate does not vary with the size of the balance.

What is the Plan 2 student loan threshold?

For the 2026 to 2027 tax year, HMRC's rates and thresholds for employers give the Plan 2 employee earnings threshold as £29,385 a year, £2,448.75 a month or £565.09 a week. The employee-facing page rounds the monthly figure down to £2,448. Thresholds change on 6 April each year, so check the current tax year before relying on any figure.

Which student loan plan should I use if a new starter does not know?

Use Plan 5 until a start notice arrives. HMRC's employer guidance states: "If they cannot tell you, use Plan 5 in your payroll software until you get a student loan start notice (SL1)." It adds that "defaulting to Plan 5 is only available for Plan 1, Plan 2 or Plan 4 loans". Where the employee has more than one plan and you do not know which is in repayment, start on the plan with the lowest recovery threshold instead.

Can a postgraduate loan deduction and a student loan deduction run at the same time?

Yes. Only one plan type can be deducted at a time, but a postgraduate loan deduction runs alongside it. GOV.UK states that an employee "may be liable to repay a postgraduate loan at the same time as a student loan (Plan 1 or Plan 2 or Plan 4 or Plan 5)", so a payslip can show six per cent above the postgraduate threshold and nine per cent above the plan threshold in the same period.

Can I stop student loan deductions if the employee says the loan is repaid?

No. GOV.UK is explicit: "You cannot stop making deductions because your employee asks you to." You stop when an SL2 or PGL2 stop notice arrives, or when HMRC asks you to in writing. An employee who believes they have overpaid should ask the Student Loans Company for a refund, and GOV.UK notes it can take around four weeks for deductions to stop after a loan is cleared.

Do student loan deductions take account of a second job?

No. Each employer looks only at the pay it provides. HMRC's guidance says that where "an employee has more than one job you should ignore earnings from the other employer", and the employee page confirms repayments come only "from jobs where you're paid over the threshold for your plan type, not your combined income". Two jobs with the same employer may need aggregating.

Your next step: fix this at the point of hire

1. Add the plan question to your starter process in a form someone has to answer: student loan yes or no, postgraduate loan yes or no, and the plan number. A P45 tick box is not enough, because it carries no plan number.
2. Check that every current borrower in payroll has a plan type you can evidence, from an SL1, a PGL1 or a signed starter checklist. Where you cannot, ask the employee to download their active plan type letter from their repayment account.
3. Confirm your payroll software holds the 2026 to 2027 thresholds, including the £25,000 Plan 5 figure and the £21,000 postgraduate threshold, and that it can run a postgraduate deduction alongside a plan deduction.
4. Write the stop rule into the procedure, in one line: deductions stop on an SL2 or PGL2, or on written instruction from HMRC, and never on request.
5. Decide now what you tell someone whose bonus month triggered a deduction. The answer is the pay period rule and a refund claim after 5 April, and it lands much better before payday than after it.
6. File the start and stop notices where you can find them for three years after the end of the relevant tax year.

For the policy wrapper around pay data, read and download our compensation policy guide. The guide is free to read, and the PDF uses our short download form.

Want starter information collected once, assigned to a named person and visible until it is complete? Book a New Dynamics demo and bring your current new starter checklist. You can also email contact@new-dynamics.com.