Student loan deduction
What Employers Need to Know
For under graduates deductions are calculated at 9% above an income threshold
Student loan repayments are now a standard part of the UK payroll process. If your employees are repaying higher education loans, you may be legally required to make deductions through PAYE.
Which Student Loans Are Repaid Through Payroll?
Only income contingent loans are repaid via payroll. These include:
- Plan 1 – Pre-2012 loans (mainly England & Wales)
- Plan 2 – Post-2012 undergraduate loans
- Plan 4 – Scottish undergraduate loans
- Plan 3 – Postgraduate Master’s and Doctoral loans
2025/26 Deduction Rates and Thresholds
Deductions are only made on earnings above the threshold and are calculated per pay period (not cumulatively).
Plan 1: £26,065 annually, £2,172.08 monthly, £501.25 weekly – 9%
Plan 2: £28,470 annually, £2,372.50 monthly, £547.50 weekly – 9%
Plan 4: £32,745 annually, £2,728.75 monthly, £629.71 weekly – 9%
Postgraduate Loan (Plan 3): £21,000 annually, £1,750.00 monthly, £403.00 weekly – 6%
How Deductions Are Started or Stopped
You must only start or stop student loan deductions based on official instructions. Acceptable notices include:
- SL1 Notice – issued by HMRC to start deductions
- SL2 Notice – issued by HMRC to stop deductions (loan repaid or overpaid)
- P45 – if Box 5 is ticked (indicates an active loan at previous employment)
- Starter Checklist – employee declarations trigger a deduction setup
Never start or stop deductions based on verbal statements or assumptions.
What if an Employee Has Two Loans?
Where an employee is repaying both a Plan 2 loan and a Postgraduate loan, deductions for both must be made. However, due to the higher interest rate, Postgraduate Loans (Plan 3) are often prioritised in collection by HMRC.
Employer Reporting Obligations
Student loan deductions are reported through your Full Payment Submission (FPS) to HMRC. We ensure that:
- All SL deductions are calculated accurately
- FPS reports include the correct plan type and deduction values
- HMRC receives timely updates with each payroll run
No separate notification is required by you to the Student Loans Company (SLC).