UK employers are required to deduct student loan repayments from employees’ pay through the PAYE payroll system when instructed by HMRC. The deductions are based on the employee’s plan type and earnings threshold, and are sent to HMRC alongside income tax and National Insurance payments.
Student Loan Plan Types
There are four student loan plan types. Each has its own annual repayment threshold:
| Plan | Who It Applies To | Repayment Rate |
|---|---|---|
| Plan 1 | England/Wales loans before September 2012; all Northern Ireland loans | 9% |
| Plan 2 | England/Wales loans from September 2012 onwards | 9% |
| Plan 4 | Scottish student loans | 9% |
| Plan 5 | England loans from September 2023 onwards | 9% |
Postgraduate Loan
In addition to student loans, there is a separate Postgraduate Loan (PGL) deduction, repaid at 6% of earnings above its own threshold. An employee can have both a student loan and a postgraduate loan deducted simultaneously.
Where the Thresholds Come From
The government sets the thresholds and most are reviewed each April; some plan thresholds are uprated in line with earnings or inflation, others are frozen for a period. HMRC publishes the current annual, monthly and weekly thresholds on GOV.UK, and payroll software applies them once updated for the new tax year.
How Employers Know to Deduct
HMRC notifies the employer to start deductions in one of two ways:
SL1 Start Notice
HMRC sends an SL1 notice through the employer’s payroll software or PAYE Online, instructing the employer to begin deductions from a specific date. The notice specifies the plan type.
Starter Checklist
When a new employee starts and does not have a P45 from a previous employer, they complete a Starter Checklist. The checklist includes a question about student loans:
- Whether they have a student loan
- Which plan type
- Whether they have a postgraduate loan
The employer must begin deductions based on the employee’s declaration unless HMRC sends different instructions.
Calculating Deductions
Student loan deductions are calculated on earnings above the threshold for the relevant plan type:
The examples below use illustrative thresholds, not the current figures.
Monthly Calculation
For a monthly-paid employee earning £2,800 per month on a plan whose threshold is £30,000 a year (£2,500 a month):
| Step | Calculation |
|---|---|
| Monthly threshold | £2,500.00 |
| Earnings above threshold | £2,800 − £2,500 = £300 |
| Deduction (9%) | £300 × 9% = £27.00 |
| Rounded down | £27 (always round down to the nearest £1) |
Weekly Calculation
For a weekly-paid employee earning £550 per week on a plan whose weekly threshold is £510:
| Step | Calculation |
|---|---|
| Weekly threshold | £510.00 |
| Earnings above threshold | £550 − £510 = £40.00 |
| Deduction (9%) | £40.00 × 9% = £3.60 |
| Rounded down | £3 |
Combined Student Loan and Postgraduate Loan
If an employee has both a student loan and a Postgraduate Loan, both are calculated separately on the same earnings and deducted. With monthly earnings of £3,000, a student loan threshold of £2,500 a month and a Postgraduate Loan threshold of £1,750 a month:
| Deduction | Calculation |
|---|---|
| Student loan | (£3,000 − £2,500) × 9% = £45.00 → £45 |
| PGL | (£3,000 − £1,750) × 6% = £75.00 → £75 |
| Total deducted | £120 |
What Counts as Earnings
Student loan deductions are based on gross earnings before tax and pension deductions but after certain exclusions:
| Included | Excluded |
|---|---|
| Basic salary | Pension contributions (employer’s) |
| Overtime | Benefits in kind |
| Bonuses and commission | Reimbursed expenses |
| Statutory Sick Pay | Redundancy payments |
| Statutory Maternity Pay | |
| Statutory Paternity Pay |
Note: genuine salary sacrifice normally reduces the cash earnings on which payroll deductions are calculated. An ordinary employee pension contribution deducted from pay is different and does not reduce the student-loan earnings figure.
Employer Obligations
Reporting Through RTI
Student loan deductions must be reported on the Full Payment Submission (FPS) to HMRC through RTI each pay period. The FPS includes:
- The plan type indicator
- The amount deducted
- Whether a postgraduate loan deduction has been made
Payment to HMRC
Student loan deductions are paid to HMRC together with income tax and NIC payments. The deadline is the 22nd of the month following the pay period (or 19th for cheque payments).
Stop Notices
HMRC issues an SL2 stop notice when the loan has been repaid in full. The employer must stop deductions from the date specified. Continuing to deduct after a stop notice results in the employee being overcharged — the employer must refund any excess deductions.
Student Loans and the Payslip
Student loan deductions must appear on the employee’s payslip as a separate deduction. The payslip should clearly show:
- The student loan plan type
- The amount deducted
- Any postgraduate loan deduction separately
The year’s total student loan deductions also appear on the P60 end-of-year certificate.
Student Loan Deductions and Accounting
Student loan deductions are a payroll deduction similar to PAYE tax, creating a liability until paid to HMRC:
| Transaction | Debit | Credit |
|---|---|---|
| Payroll run | Net pay payable (reduction) | Student loan liability |
| Payment to HMRC | Student loan liability | Bank |
The employer does not bear the cost of student loan repayments — they are deducted from the employee’s pay and passed to HMRC. The cost appears in the accounting records only as a temporary liability.
Common Payroll Errors
| Error | Impact |
|---|---|
| Wrong plan type | Incorrect threshold and potential over/under-deduction |
| Not starting deductions when instructed | Employee falls behind on repayments; HMRC may issue penalties |
| Not stopping when SL2 received | Employee overcharged; employer must refund |
| Deducting net pay pension contributions first | Underpayment — use the same earnings as for Class 1 NIC |
| Rounding up instead of down | Small but systematic overpayment |