Processing student loan deductions is just one of the many tasks employers must complete when processing payroll. HMRC have now confirmed the thresholds and rates needed to calculate deductions from 6 April 2026 - including the threshold for those on the recently introduced ‘plan 5’ loan scheme.

Background

An employee who has spent time in further and/or higher education could have a student loan, a postgraduate loan or both. Once they start earning over the threshold for their loan(s), they will need to make repayments at the appropriate rate for that loan. The rate is 9% of earnings over the relevant threshold for undergraduate student loans and 6% of earnings above the threshold for postgraduate loans.

Employers must calculate and make those deductions as part of their payroll processes. Deductions should start when:   

• HMRC sends a SL1 start notice for a student loan or a PGL1 start notice for a postgraduate loan.
• The employee’s form P45 from a previous role shows that student loan deductions should continue.
• An employee advises via their new starter checklist that they have a student loan. The employee should tell their employer what specific plans they have, so the employer can calculate the appropriate deductions.

Employers are responsible for calculating the repayments due, deducting them from the employee’s wages and paying them over to HMRC. Where an employee has both a student loan and a postgraduate loan, the employer should make the relevant deductions for both. This means some employees repaying at a combined rate of up to 15%. Generally, the calculations will be carried out automatically by software, as long as the employer knows which type of loans the employee is repaying.

Employers should continue taking deductions until HMRC issues a stop notice.

Individuals with a student loan could be repaying under plan 1, 2, 4 or, from 6 April 2026, the new plan 5. The position is complex and the exact plan depends on the time that the employee started their study and which funding body they applied to.

There is a step by step guide on GOV.UK to help employees work out which plan applies to them. They can also check what plan they are on, and how much they owe online at manage your student loan balance.

New plan 5

Plan 5 will be relevant to employees who applied to Student Finance England for their loan and started courses from August 2023 onwards. The first repayments under plan 5 will be made from 6 April 2026, and employers will start to receive student loan start notices from March 2026.

Repayment thresholds for 2026/27

The following thresholds will apply to student loan deductions from 6 April 2026:

• Plan 1 — £26,900
• Plan 2 — £29,385
• Plan 4 — £33,795
• Plan 5 — £25,000

The thresholds for plans 1, 2 and 4 have all increased by 3.2% compared to 2025/26.

The threshold for plan 4 is higher than the other thresholds and applies to individuals who applied for a loan from the Student Award Agency for Scotland. Even if these individuals are no longer resident in Scotland, they will still benefit from the higher threshold.

The postgraduate loan threshold remains at £21,000. This threshold has not changed since it was introduced in April 2016.

HMRC guidance

HMRC will update their guidance on making student loan deductions for the new thresholds – but not until 6 April 2026. Until then, the guidance will only show the thresholds for 2025/26.

  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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