Deducting Student Loan and Postgraduate Loan Repayments

If you employ anyone repaying a student or postgraduate loan, you're responsible for deducting the correct amount from their pay each time you run payroll and reporting it to HMRC. The plan type determines the earnings threshold and repayment rate, so it's important to identify which plan applies to each employee. This article explains how to check loan status, calculate deductions, and report them correctly.

Who needs student loan deductions?

You must make student or postgraduate loan deductions when any of these situations apply:

• A new employee's P45 shows deductions should continue
• Your employee tells you they're repaying a student loan or postgraduate loan
• The starter checklist shows they have a loan (and which plan or loan type)
• HMRC sends you a SL1 start notice (for student loans) or PGL1 start notice (for postgraduate loans)
• You receive a Generic Notification Service (GNS) reminder from HMRC

When you identify an employee with a loan, you must start deductions from the next available payday. Never make deductions for previous pay periods in arrears.

Understanding plan types and thresholds

From April 2026, there are four student loan plan types and one postgraduate loan type. Each has a different earnings threshold:

Student loans:

• Plan 1 – £26,900 annually (£2,241.66 monthly or £517.30 weekly)
• Plan 2 – £29,385 annually (£2,448.75 monthly or £565.09 weekly)
• Plan 4 – £33,795 annually (£2,816.25 monthly or £649.90 weekly)
• Plan 5 – £25,000 annually (£2,083.33 monthly or £480.76 weekly)

Employees repay 9% of earnings above the threshold for all student loan plans.

Postgraduate loans:

• Threshold: £21,000 annually (£1,750 monthly or £403.84 weekly)
• Repayment rate: 6% of earnings above the threshold

Some employees repay both a student loan and a postgraduate loan at the same time. You must make both deductions and report them separately.

What if the employee doesn't know their plan type?

Ask your employee to check which repayment plan they're on through the government's student loan service. If they cannot tell you which plan applies, use Plan 5 as the default in your payroll software until HMRC sends you a SL1 start notice with the correct plan type.

This default rule only applies to Plan 1, Plan 2, or Plan 4 loans. It does not apply to postgraduate loans.

If an employee has more than one student loan plan, start deductions for the plan with the lowest recovery threshold until you receive a SL1 notice confirming the correct arrangements.

Calculating the deduction amount

Use the same gross pay figure you use to calculate employer's secondary Class 1 National Insurance contributions. This is the earnings amount before any deductions.

Once you've identified the correct threshold and rate:

1. Subtract the threshold from the employee's gross pay for the period

2. Multiply the result by either 9% (student loans) or 6% (postgraduate loans)

3. If the employee earns below the threshold, no deduction is due

The calculation is based on each individual pay period, not cumulative earnings across the tax year.

Receiving start and stop notices from HMRC

HMRC will send you a SL1 start notice (for student loans) or PGL1 start notice (for postgraduate loans) when an employee should have deductions made.

If you receive a start notice for someone you've never employed: contact the Employer Helpline. HMRC will investigate and file the notice away.

If the employee claims they never had a student loan: start making deductions anyway in line with the notice and continue unless HMRC tells you otherwise.

If you're already making deductions: check whether the plan type on the new SL1 matches what you're currently using. If it's different, update your payroll software and use the new plan type from the next payday.

If you receive a P45 after the employee has started work: ask them to confirm their plan or loan type if they didn't tell you when they started, or if there's a gap since their last employment. Start deductions from the next payday.

Employees who think they've overpaid should ask for a refund directly through their student loan account, not through you.

Generic Notification Service (GNS) reminders

HMRC sends four types of GNS messages about student and postgraduate loans:

1. Reminder to start deductions – when you've submitted a Full Payment Submission (FPS) showing nil deductions for an employee who should have them

2. Reminder about incorrect plan type – when the plan type on your FPS doesn't match HMRC's records

3. Reminder to stop deductions – when an employee has finished repaying (you'll also receive a SL2 or PGL2 stop notice)

4. Reminder not to deduct – for employees subject to off-payroll working rules or those only receiving occupational pensions

When you receive a GNS message, check the relevant start notice or starter checklist to confirm the correct details. If you don't have these documents, ask your employee to complete a starter checklist.

Reporting to HMRC

Include all student and postgraduate loan deductions on your Full Payment Submission (FPS) each time you run payroll. Your payroll software should have fields for the plan type and deduction amounts.

Make sure you select the correct plan type from the drop-down menu in your payroll software, as HMRC will check this against their records.

Special situations

Off-payroll workers: If you're operating off-payroll arrangements where workers are engaged through their own companies, you're not responsible for deducting student or postgraduate loan repayments. The worker accounts for loan obligations through their own tax return.

Employees seconded from overseas: If an overseas employer seconds an employee to work in the UK, they should complete an expat starter checklist. If it shows they have a student or postgraduate loan, start making deductions from the next payday.

Occupational pensions: If you're paying an occupational pension rather than a salary, ignore any student loan GNS messages. If you've made student or postgraduate loan deductions from an occupational pension within the current tax year, refund them to the recipient.

Sources

• Student loan and postgraduate loan repayment guidance for employers

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.