Student and Postgraduate Loans for UK Employers

Managing student loan deductions for your employees is an essential part of payroll compliance in the UK. As an employer, understanding your responsibilities and the specific rules is key to ensuring accuracy and adherence to HMRC regulations. This guide provides a clear overview of what you need to know.

Plan and Loan Types: Thresholds for 2025/2026

Below is an overview of the income thresholds and deduction rates for each student loan plan type in the 2025/26 tax year:

| Plan Type            | Annual Threshold | Weekly   | Monthly   | Deduction Rate |
|----------------------|------------------|----------|-----------|----------------|
| Plan 1              | £26,065.00      | £501.25  | £2,172.08 | 9%             |
| Plan 2              | £28,470.00      | £547.50  | £2,372.50 | 9%             |
| Plan 4              | £32,745.00      | £629.71  | £2,728.75 | 9%             |
| Postgraduate Loan   | £21,000.00      | £403.84  | £1,750.00 | 6

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Employers must ensure their payroll systems are updated to reflect these thresholds and rates for compliance with the 2025/26 tax year. These changes come into effect starting 6 April 2025.

1. Identifying Employees with Student Loans

When a new employee joins your organization, it is your responsibility to determine whether they have an outstanding student loan. You can identify this through:

• The Starter Checklist: Employees complete this form when they start a new job. It includes a section where they indicate whether they have a student loan and specify the repayment plan type (e.g., Plan 1, Plan 2, Plan 4, or Postgraduate Loan).

• P45 Form: If the employee’s P45 indicates a 'Y' in the student loan box, they have a loan. However, the P45 might not specify the loan plan type, so further clarification from the employee may be needed.

• HMRC Notifications: HMRC will send a Start Notice (SL1 /PGL1) to you, instructing you to begin deductions. This notice will specify the repayment plan type.

2. Understanding Plan Types and Thresholds

Employees’ student loan deductions depend on the repayment plan type. Each plan has different income thresholds and rates for the 2025/26 tax year:

• Plan 1: For students who started their course before September 2012. Repayments start when earnings exceed £26,065 annually (£501.25 weekly, £1,002.50 two-weekly, £2,005.00 four-weekly, or £2,172.08 monthly). The deduction rate is 9% of income above this threshold.

• Plan 2: For students who started their course on or after September 2012. Repayments start when earnings exceed £28,470 annually (£547.50 weekly, £1,095.00 two-weekly, £2,190.00 four-weekly, or £2,372.50 monthly). The deduction rate is also 9% of income above the threshold.

• Plan 4: For Scottish students. Repayments start when income exceeds £32,745 annually (£629.71 weekly, £1,259.42 two-weekly, £2,518.84 four-weekly, or £2,728.75 monthly). The deduction rate is 9% of income above the threshold.

• Postgraduate Loan (PGL): Repayments start when income exceeds £21,000 annually (£403.84 weekly, £807.69 two-weekly, £1,615.38 four-weekly, or £1,750.00 monthly). The deduction rate is 6% of income above the threshold.

  
  

3. Key Differences Between 2024/2025 and 2025/2026

The thresholds for student loan repayments have increased for most plans in the 2025/26 tax year compared to 2024/25. Here is a summary of the changes

| Plan Type            | 2024/2025 Threshold                         | 2025/2026 Threshold                         | Difference         |
|----------------------|---------------------------------------------|---------------------------------------------|--------------------|
| Student Loan Plan 1  | £24,990 per year (£2,082.50/month, £480.57/week) | £26,065 per year (£2,172.08/month, £501.25/week) | +£1,075 per year   |
| Student Loan Plan 2  | £27,295 per year (£2,274.58/month, £524.90/week) | £28,470 per year (£2,372.50/month, £547.50/week) | +£1,175 per year   |
| Student Loan Plan 4  | £31,395 per year (£2,616.25/month, £603.75/week) | £32,745 per year (£2,728.75/month, £629.71/week) | +£1,350 per year   |
| Postgraduate Loan    | £21,000 per year (£1,750/month, £403.84/week)    | £21,000 per year (£1,750/month, £403.84/week)    | No change          |
| Student Loan Deduction Rate | 9%                                   | 9%                                           | No change          |
| Postgraduate Loan Deduction Rate | 6%                             | 6%                                           | No change

Employers should adjust payroll systems to reflect these new thresholds for the 2025/26 tax year to ensure compliance.

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4. Setting Up Payroll Deductions

Once you’ve identified the appropriate plan type for an employee:

• Configure Payroll: Ensure your payroll software is set up to apply the correct deduction rate and thresholds for each plan type.

• Regular Reporting: Report student loan deductions to HMRC as part of your Real Time Information (RTI) submissions.

• Payslips: Clearly show student loan deductions on employees’ payslips, specifying the amount deducted and the plan type.

5. Stopping Deductions

You should only stop student loan deductions when:

• HMRC Issues a Stop Notice (SL2/PGL2): HMRC will notify you when an employee’s loan is fully repaid or no longer requires deductions.

• Employee Communication is Not Enough: Do not cease deductions based solely on an employee’s request. Always wait for an official SL2 or PGL2 notice from HMRC.

6. Special Considerations

• Multiple Jobs: If an employee has more than one job with your organization, ensure deductions are calculated correctly across all employments.

• Pay Frequency Changes: Adjust deductions appropriately if an employee’s pay frequency changes (e.g., from weekly to monthly).

• Court Orders: Be aware of court orders that might affect student loan deductions. Student loan deductions take priority over most other deductions but may be impacted by specific court orders.

7. Employer Contributions to Student Loans

Employers can choose to assist employees by contributing to their student loan repayments. However, such contributions are considered a taxable benefit and are subject to income tax and National Insurance contributions. For detailed guidance, please refer to the HMRC Employment Income Manual EIM21747.

8. Staying Updated

Student loan thresholds and rules are reviewed annually. Always refer to the latest HMRC guidance to ensure compliance. You can find up-to-date information on the official government website.

Conclusion

By understanding the rules around student loan deductions and implementing proper payroll processes, you can support your employees while ensuring compliance with HMRC regulations. If you have any doubts, consult with your payroll software provider or an HR expert to streamline the process.

Frequently Asked Questions (FAQs)

1. When do the new thresholds take effect? The new thresholds for the 2025/26 tax year take effect starting 6 April 2025.

2. What happens if I deduct the wrong amount for student loans? If an incorrect deduction is made, you should correct it as soon as possible. Contact Givver.io for guidance if necessary.

3. Can I stop deductions if an employee says their loan is fully repaid? No. Only stop deductions when HMRC sends a Stop Notice (SL2/PGL2). An employee’s request is not sufficient.

4. What payroll software supports these updates? Popular payroll software such as Givver automatically update thresholds and rates for compliance.

6. How can I confirm which student loan plan an employee is on? Check the employee's Starter Checklist, P45, or any SL1 or PGL1 notice issued by HMRC. These documents indicate the correct plan type.