Student Loan Deductions in 2026-27: Thresholds, Notices and Worked Payslips

Student loan deductions are one of the few payroll items where the employer acts purely as HMRC's collector: you don't decide whether someone repays, but you're responsible for getting the amount right. This guide is for small employers, bookkeepers and employees checking a payslip. It covers the 2026-27 thresholds for every plan, the new Plan 5, the SL1 and SL2 notices, what to do when nobody knows which plan applies, how to fix mistakes, and worked payslips in pounds.

Quick answer

Employers deduct 9% of an employee's pay above their plan's threshold, and 6% above the postgraduate loan threshold, every pay period. In 2026-27 the annual thresholds are £26,900 (Plan 1), £29,385 (Plan 2), £33,795 (Plan 4), £25,000 (Plan 5) and £21,000 (postgraduate). You start when a P45, starter checklist or HMRC SL1 notice tells you to, and stop only on an SL2.

• Plan 5 deductions started on 6 April 2026 for courses begun from August 2023

• Worked out on each period's pay, not annual pay, and rounded down to whole pounds

• Only one undergraduate plan is deducted, plus a postgraduate loan if there is one

• Employee doesn't know their plan? Use Plan 5 until an SL1 arrives

• Budget 2025 froze the Plan 2 threshold at £29,385 from April 2027 to April 2030

How student loan deductions work

When a graduate starts work, their loan is repaid through PAYE alongside Income Tax and National Insurance. The employer calculates the deduction each payday, takes it from net pay, reports it on the Full Payment Submission (FPS), and pays it to HMRC with the rest of the PAYE bill by the 22nd of the following tax month (19th if paying by post). HMRC passes the money to the Student Loans Company (SLC), which keeps the borrower's account.

Three rules shape every calculation. First, the deduction is non-cumulative: each pay period stands alone, so a high month is never balanced by a low one. Second, it's based on the same gross pay you use for employer secondary Class 1 National Insurance, not taxable pay. Third, the result is rounded down to the whole pound. HMRC's formula is simply: (earnings in the period − period threshold) × rate, where the period threshold is the annual threshold divided by the number of pay periods.

Because the base is National Insurance pay, anything that reduces NIC pay also reduces the deduction. Salary sacrifice for pensions or cycle-to-work lowers it; employee pension contributions under a net pay arrangement don't, because they reduce taxable pay but not NIC pay. Benefits in kind such as a company car don't count, as they aren't Class 1 earnings.

Employees with two jobs are assessed separately in each job. Each employer compares only the pay it makes against the threshold and ignores income from elsewhere. The borrower's total income is only looked at if they also file a Self Assessment return, where HMRC works out the full-year liability and gives credit for what employers have already deducted.

Thresholds and rates for 2026-27

HMRC's figures for 6 April 2026 to 5 April 2027 are below. Payroll software uses the threshold that matches the pay frequency, so a weekly-paid Plan 2 borrower crosses the line at £565.09 and a monthly-paid one at £2,448.75.

Source: HMRC rates and thresholds for employers 2026 to 2027, and the student loan payroll technical specification.

Plan 1, Plan 2 and Plan 4 thresholds rose in April 2026. The postgraduate threshold hasn't moved since it was introduced, and Plan 5 starts at £25,000. In the November 2025 Budget, the government announced that the Plan 2 threshold will be held at £29,385 from April 2027 to April 2030 instead of rising each April, according to payroll industry reporting of the Budget. That means more Plan 2 borrowers will repay, and repay more, as wages grow. HMRC will confirm the 2027-28 thresholds in its employer rates and thresholds guidance before April 2027.

Which plan is the employee on?

The plan depends on where the borrower lived when they applied and when their course started. Employers don't need to work this out themselves, because the SL1 notice states the plan, but it helps when an employee asks why a deduction looks wrong.

• Plan 1: students from England or Wales who started before 1 September 2012, and all Northern Ireland students.
• Plan 2: students from England or Wales who started an undergraduate course between 1 September 2012 and 31 July 2023 (and Welsh students from 1 September 2012 onwards).
• Plan 4: all students funded by the Student Awards Agency Scotland.
• Plan 5: students from England who started an undergraduate or similar course on or after 1 August 2023.
• Postgraduate loan: master's or doctoral loans from Student Finance England or Student Finance Wales. Postgraduates from Northern Ireland are on Plan 1 and from Scotland on Plan 4.

Repayments can start no earlier than the April after the borrower leaves their course, which is why Plan 5 deductions only began on 6 April 2026: Plan 5 courses started from August 2023, so the earliest borrowers to finish became liable in the 2026-27 tax year. Expect many more Plan 5 SL1 notices over the next few years as larger cohorts graduate.

When to start deductions

You must start deductions from the next available payday after any of these tells you the employee has a loan:

• the employee's P45 from their last job has a "Y" in box 5 (student loan deductions to continue);
• the starter checklist or the employee's own declaration says they have a loan and which plan;
• HMRC sends an SL1 (student loan) or PGL1 (postgraduate loan) start notice;
• you get a Generic Notification Service (GNS) reminder through PAYE Online saying a notice is on its way.

Never deduct for earlier pay periods: HMRC's guidance is explicit that you make no deductions in arrears. If an SL1 arrives in month seven, you start in month seven or eight and leave months one to six alone.

Handling a new starter with a loan

1. 1

   Check the P45 and starter checklist

   A 'Y' in box 5 of the P45, or a loan declared on the starter checklist, means you start deductions.

2. 2

   Set the plan in your software

   Use the plan the employee gives you. If they don't know, use Plan 5. If they have several, use the lowest threshold. Add a postgraduate loan separately.

3. 3

   Start from the next payday

   Deduct from the next available payday. No back-dated deductions.

4. 4

   Correct the plan when the SL1 arrives

   If the SL1 or a GNS message shows a different plan, switch from the first available payday.

5. 5

   Keep the paperwork

   Keep wage records and every SL1, SL2, PGL1 and PGL2 for at least 3 years after the end of the tax year.

   HMRC student loan guidance for employers

If the employee doesn't know their plan. Ask them to check in their SLC online account. If they still can't tell you, HMRC now says to use Plan 5 until an SL1 arrives. That default only applies to Plan 1, 2 and 4 type loans, so a postgraduate loan always needs its own instruction. Older guidance told employers to default to Plan 1; if your software still does that, update your process.

If the employee has more than one plan. Only one undergraduate plan is operated through payroll. Until an SL1 tells you which, use the plan with the lowest threshold. A postgraduate loan can run alongside that one plan. The SLC then shares the money between the borrower's loans.

If you get an SL1 for someone you've never employed, contact the HMRC employer helpline. If an employee insists they've never had a loan, follow the notice anyway until HMRC tells you otherwise.

Worked payslips for 2026-27

All the examples below use the monthly thresholds and round the result down to the pound, as HMRC requires. Weekly and fortnightly payrolls follow the same steps with their own thresholds.

The Plan 1 and Plan 5 examples show why the plan matters. Two colleagues on identical £30,000 salaries repay £23 and £37 a month, and a Scottish colleague on Plan 4 repays nothing, purely because of when and where they studied. A Plan 2 and postgraduate borrower pays both deductions in full each month; HMRC's specification allocates loan deductions to the postgraduate loan first because it carries a higher interest rate.

A bonus month. A Plan 2 employee earns £2,300 a month (£27,600 a year), below the monthly threshold, so normally pays nothing. In December they get a £1,000 bonus, taking pay to £3,300. That month's deduction is (£3,300 − £2,448.75) × 9% = £76.61, rounded down to £76. Their pay for the year is £28,600, still under the £29,385 annual threshold, so after 5 April they can ask the SLC for the £76 back. The employer did nothing wrong: the deduction was correct for that pay period.

A weekly-paid worker. A Plan 2 borrower paid £600 a week has £34.91 above the weekly threshold of £565.09, so the deduction is £3.14, rounded down to £3.

You can check payslip figures with the salary slip generator, and see how National Insurance is worked out on the same pay in our employer National Insurance guide.

Irregular pay, leavers and special cases

HMRC's Collection of Student Loans Manual says the general rule for awkward cases is to follow the National Insurance rules. If you pay someone irregularly but there's a regular pattern, that pattern sets the pay period, as it does for NICs. If an employee has two sets of regular payments, add them together and use the shorter interval. Holiday pay paid in advance is treated the same way as for National Insurance. Directors are a common source of questions, because their NICs use an annual earnings period; check that your software's director setting applies the same period to student loans, and ask HMRC if you're unsure.

Payments on a different day. A payment made early or late in the same tax year is treated as made on the normal payday. If it crosses into a new tax year, use the threshold and rate for the year in which it is actually paid. That matters every April: a March salary paid on 6 April is tested against the new year's thresholds.

Leavers. When someone leaves, put "Y" in box 5 of the P45 if student loan deductions should continue. That applies if an SL1 or PGL1 start date falls in this or an earlier tax year, if their previous P45 had a "Y", or if their starter information showed a loan, even if they never earned enough for a deduction with you. Leave box 5 blank if you've had an SL2 or PGL2. Payments after someone leaves, such as a final bonus, use the same pay and earnings period as their National Insurance.

Death of an employee. Make no student loan deductions from payments for any period after the date of death, including accrued holiday pay and a final bonus.

Pensioners and off-payroll workers. If you only pay someone an occupational pension, you don't deduct student loan, and GNS messages will tell you to stop and refund any taken this year. Workers caught by the off-payroll (IR35) rules don't have student loan collected through the client's payroll from their off-payroll payments; refund any taken from those payments if HMRC tells you to.

Student loan payroll dates

6 April 2026

2026-27 thresholds apply; Plan 5 deductions begin

Each payday

Deduction calculated on that period's NIC pay and reported on the FPS

22nd of next tax month

Pay student loan deductions to HMRC with PAYE (19th by post)

28 October 2026

Autumn Budget — watch for 2027-28 threshold changes

6 April 2027

Plan 2 threshold freeze at £29,385 begins

Stopping deductions: SL2 and PGL2

You stop deductions only when HMRC tells you to, by an SL2 or PGL2 stop notice, a GNS stop reminder, or written instructions. Stop from the first payday on which it's practical to apply the notice. An employee can't stop deductions by asking you, even if they're sure they've cleared the loan or are about to; refer them to the SLC.

If an SL2 arrives for someone who has already left and you haven't sent their leaver details, leave the student loan box blank and send leaver information through Real Time Information as normal.

Borrowers nearing the end of their loan sometimes overpay for a few months before the stop notice reaches payroll. That's expected: the SLC refunds the overpayment directly to the borrower. Employers shouldn't refund deductions once an SL2 has been issued.

Fixing mistakes

Mistakes usually come from a wrong plan, a missed P45, or a start date keyed late. HMRC's rules depend on whether the error is in the current tax year.

Too much deducted this tax year. Refund the employee through payroll and correct the year-to-date figures on your next FPS. If your software can't do this, call the employer helpline.

Too little deducted this tax year. Collect the shortfall, but in any pay period you can't take more than that period's normal deduction on top. HMRC's example: if £25 is owed and the normal deduction is £15, you can take up to £30 that period (the £15 plus £15 of arrears), leaving £10 for later periods.

Errors in a previous tax year. If you've already sent the final FPS for that year, don't adjust anything; tell the employee to contact the SLC if they ask. If you haven't sent the final FPS, refund over-deductions and correct the records, but don't try to recover under-deductions.

Wrong plan. When an SL1 or GNS message shows a different plan, switch from the first available payday. Don't recalculate earlier periods: the SLC adjusts the borrower's account. Plan 2 and Plan 4 borrowers who were put on the wrong plan can ask the SLC for a refund of any excess.

Quarterly student loan payroll check

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• Every new starter's P45 box 5 and starter checklist answers are reflected in payroll
• Any employee defaulted to Plan 5 or a lowest-threshold plan has had an SL1 since — and the plan matches
• GNS messages in PAYE Online have been read and actioned
• Under-deductions are being recovered at no more than one extra normal deduction per period
• Leavers' P45s show 'Y' in box 5 where deductions should continue
• SL1, SL2, PGL1 and PGL2 notices are filed with the employee's payroll record

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What employees can claim back

Because payroll looks at each pay period alone, employees with uneven pay can repay more than their annual income justifies. The SLC refunds borrowers whose income for the whole tax year was below their plan's threshold (below the lowest threshold if they have more than one plan). They apply through their online account after 5 April. Refunds are also possible if deductions started before the April after the course ended, if the loan was overpaid, or if a Plan 2 or Plan 4 borrower was on the wrong plan. Voluntary extra repayments made directly to the SLC are never refunded.

Each job is tested separately, so a borrower with two part-time jobs below the threshold may pay nothing through payroll even though their combined income is above it. If they file Self Assessment, HMRC calculates the full-year amount on total income and collects the balance with their tax bill.

Unpaid balances are written off at the end of the plan's term: 25 years after the first April repayment was due for most Plan 1 loans taken out from September 2006, 30 years for Plan 2, Plan 4 (from August 2007) and postgraduate loans, and 40 years for Plan 5.

Budget 28 October 2026: what to watch

The Budget on 28 October 2026 could affect student loan payroll even though repayment terms aren't a tax. The Plan 2 threshold is already set to stay at £29,385 from April 2027 to April 2030. Plan 1 and Plan 4 thresholds normally rise with inflation each April, and the government could extend freezes to other plans or change the Plan 5 threshold. Any change for 2027-28 will appear in HMRC's employer rates and thresholds guidance; we'll update the table above when it's published.

Official links

• Student loan guidance for employersStarting, stopping, errors, GNS messages
• Rates and thresholds for employers 2026 to 2027All plan thresholds and rates
• Student loan payroll technical specificationFormula and rounding
• Collection of Student Loans ManualHMRC's detailed rules
• Repaying your student loanPlans, refunds and write-off for borrowers

What to do next

Check that your payroll software has the 2026-27 thresholds, that any employee defaulted to Plan 5 has since received an SL1, and that someone reads GNS messages in PAYE Online every month. At the tax year end, student loan totals go onto each employee's P60 and the final FPS; our payroll year-end guide walks through it. If you're new to running payroll, start with registering as an employer.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What are the student loan thresholds for 2026-27?

For 6 April 2026 to 5 April 2027 the annual thresholds are £26,900 (Plan 1), £29,385 (Plan 2), £33,795 (Plan 4, Scotland), £25,000 (Plan 5) and £21,000 (postgraduate loan). Employers deduct 9% of pay above the plan threshold and 6% above the postgraduate threshold, worked out separately for each pay period.

What is Plan 5 and when do deductions start?

Plan 5 covers undergraduate and similar loans from Student Finance England for courses starting on or after 1 August 2023. Repayments through payroll began on 6 April 2026, with a threshold of £25,000 a year and a 9% rate. If a new employee says they have a loan but doesn't know the plan, HMRC tells employers to use Plan 5 until an SL1 arrives.

What is an SL1 notice?

An SL1 is HMRC's student loan start notice. It tells you to start deducting student loan repayments for a named employee and which plan to use. You start from the next available payday and never deduct for earlier pay periods. A PGL1 does the same for postgraduate loans. SL2 and PGL2 are the matching stop notices.

Can an employee ask me to stop student loan deductions?

No. Only HMRC can stop deductions, by sending an SL2 or PGL2 stop notice or written instructions. If an employee thinks they've repaid in full, or is on the wrong plan, they should contact the Student Loans Company. Over-repayments are refunded by the Student Loans Company, not by the employer, once a stop notice has been issued.

Why was student loan deducted when my annual salary is below the threshold?

Payroll deductions are worked out on each pay period separately, not on annual pay. A month with a bonus or overtime can go over the monthly threshold even if the year's total doesn't. If your income for the whole tax year was below your plan's threshold, you can ask the Student Loans Company for a refund after the tax year ends.

Do employers deduct student loan from more than one plan?

Only one undergraduate plan is deducted through payroll, even if the employee has several, plus a postgraduate loan if they have one. Without an SL1 telling you which plan, start with the plan that has the lowest threshold. The Student Loans Company shares the money between the employee's loans.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Rates and thresholds for employers 2026 to 2027 — HMRC / GOV.UK · accessed 11 October 2026
2. 2.Student loan and postgraduate loan repayment guidance for employers (special rules) — HMRC / GOV.UK · accessed 11 October 2026
3. 3.Collection of student loans from 6 April 2026 (payroll technical specification) — HMRC · accessed 11 October 2026
4. 4.CSLM10111 — Employers' questions: how much do I deduct? — HMRC manual · accessed 11 October 2026
5. 5.CSLM17070 — Borrower within PAYE: special situations — HMRC manual · accessed 11 October 2026
6. 6.Repaying your student loan — Student Loans Company / GOV.UK · accessed 11 October 2026
7. 7.Student loan repayment thresholds for 2026/27 — Cintra (payroll provider) · accessed 11 October 2026