Student loan and postgraduate loan deductions through payroll
How student and postgraduate loan repayments work through PAYE: the plan types, the earnings threshold, which plan to use and when deductions stop.
If you employ someone who has been to university, there is a good chance you will need to collect their student loan or postgraduate loan repayments through payroll. This guide explains how those deductions work, the different plan types, how you know which one applies, and when the deductions stop.
How student loan repayments are collected
For most employees, student loan repayments are collected through PAYE, the same system used for income tax and National Insurance. You calculate the repayment each pay period, deduct it from the employee’s pay, and pay it over to HMRC as part of your normal PAYE payment. HMRC then passes it to the Student Loans Company, who manage the loan itself.
This means the repayment shows on the payslip as a deduction, just like tax and National Insurance. You do not need to know the balance of the loan or manage the account. Your job is to apply the correct plan, calculate the deduction and hand it over. It is a percentage of earnings, worked out fresh each period, so an employee who earns nothing in a period repays nothing.
Repayments are a percentage above a threshold
The key thing to understand is that student loan repayments are not a fixed monthly amount. They are a percentage of earnings above a threshold. Each plan type has its own threshold and its own percentage rate.
If the employee earns below the threshold in a pay period, they repay nothing that period. If they earn above it, the deduction is the set percentage applied to the amount over the threshold, not to their whole pay. Because the calculation is done period by period, a variable earner might repay in some periods and not others.
The exact thresholds and percentages change from time to time and differ by plan, so we do not quote specific figures here. Always work from the current figures published by HMRC and the Student Loans Company for the tax year in question.
The different plan types
There are several student loan plans, plus a separate postgraduate loan, and they are not interchangeable. Broadly, the plan depends on when and where the person studied. The main types are:
| Plan | Broadly who it applies to |
|---|---|
| Plan 1 | Older loans, and students from Northern Ireland |
| Plan 2 | Many students in England and Wales who started courses from 2012 |
| Plan 4 | Students who borrowed through the Scottish system |
| Plan 5 | Newer loans for students in England starting from the 2023 to 2024 academic year |
| Postgraduate Loan (PGL) | Master’s and doctoral loans, deducted alongside any Plan 1, 2, 4 or 5 loan |
The Postgraduate Loan is important to note because it can run at the same time as one of the undergraduate plans. Where that happens, you make two separate deductions in the same period, each at its own rate and threshold.
How you know which plan to use
You should never guess the plan type. There are two reliable sources.
First, when a new employee joins, the starter checklist (which replaced the old P46) asks about student and postgraduate loans, including which plan they are on. This is your starting point for a new starter who does not bring the information across from a previous employer.
Second, HMRC sends start notices. An SL1 tells you to start deducting a student loan and which plan applies; a PGL1 does the same for a postgraduate loan. If you receive one of these, you act on it even if the starter checklist said something different, because the HMRC notice is the authoritative instruction.
A common mistake is starting or changing a plan just because the employee mentions it. Work from the starter checklist or an HMRC notice, not from memory or assumption, because the wrong plan means the wrong deduction.
When deductions stop
Deductions do not stop automatically when the loan is nearly repaid. You keep deducting until one of two things happens:
- HMRC sends a stop notice. An SL2 tells you to stop student loan deductions and a PGL2 tells you to stop postgraduate loan deductions. This usually arrives when the loan is close to being cleared.
- The employee leaves. Deductions naturally end when they stop working for you, and the position carries across to their next employer through the usual starter process.
You should not stop deductions simply because an employee tells you their loan is paid off. Wait for the HMRC stop notice. Stopping too early can leave the employee owing money and can create problems for you as the employer.
Let us take care of student loans for you
Student loan deductions are simple in principle but easy to get wrong: the right plan, the right threshold, postgraduate loans running alongside, and acting only on the proper notices. When we run your payroll, we apply the correct plan from the starter checklist or HMRC notice, calculate each deduction accurately, and stop promptly when HMRC tells us to. Learn more about our outsourced payroll, or get a quote.