White piggy bank wearing a mortar-board hat sat on a textbook next to a pile of coins
Do your employees have student loans that are nearing full repayment?

In January's Employer Focus, we looked at the new student loan repayment thresholds  from 6 April 2026, including the threshold for those on the recently introduced ‘plan 5’ loan scheme. While much of the focus is often on when loan repayments start, both employees and employers also need to understand what happens when student loans are approaching full repayment.

When a student loan has been repaid in full, HMRC will notify the employer to stop making deductions through payroll. However, there can be a delay between the loan being repaid and payroll deductions stopping. As a result, some employees may repay more through PAYE deductions than they owe.

To help avoid this, the Student Loans Company (SLC) may contact employees ahead of their  final year of repayment and offer the option to switch from payroll deductions to Direct Debit. This allows the SLC to collect only the outstanding balance and can reduce the risk of overpayments. Where an employee chooses to do this, the SLC will issue an SL2 stop notice (for undergraduate loans) or PGL2 (for postgraduate loans) to the employer to prevent the employee continuing to repay via PAYE as well.

However, employees with student loans need to ensure that they keep their contact details on their online account up to date, to ensure that they receive correspondence from the SLC about this option.

Where an overpayment does occur, the SLC will normally either contact the employee about obtaining a refund or issue an automatic repayment directly to their bank account. A refund cannot be issued by the employer. Employees can also check their outstanding balance through their online account and contact the SLC if they believe they have overpaid.

Employer Responsibilities

Employers must not stop deductions simply because an employee says they have nearly repaid their loan. HMRC guidance is clear that deductions should only cease when:

  • An SL2 stop notice for a student loan is received,
  • A PGL2 stop notice for a postgraduate loan is received, or 
  • In exceptional circumstances, HMRC may ask you to stop making deductions.

Once a stop notice is received, deductions should stop from the first available payday after the date shown on the notice.

HMRC reminder messages

To support employers in operating deductions correctly, HMRC issues Generic Notification Service (GNS) messages through PAYE Online.

HMRC send four types of student loan or postgraduate loan GNS reminders. One of these is a reminder to stop student loan or postgraduate loan deductions for an employee where HMRC has sent, or is in the process of sending, an SL2 or PGL2 stop notice. Employers should ensure that payroll teams regularly review GNS messages and have email alerts set up. 

Summary  

As employees approach the end of their student loan repayments, employers may receive questions about when deductions will stop and whether overpayments can be avoided. 

For employers, it is essential that they continue operating deductions exactly as instructed by HMRC and only stop when an official stop notice is received. While payroll software may  automate the process, payroll teams should continue to monitor HMRC notifications and ensure that the correct deductions are being applied.

For more detailed guidance on student loan and postgraduate loan deductions, including when deductions should start and stop, how they are calculated and the notices employers may receive from HMRC, see HMRC's Student loan and postgraduate loan repayment guidance for employers.

 

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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