My new employee has a student loan, what do I have to do?

What are student loans? 

Student loans are Government-backed finance plans that undergraduate university students can use to help fund their fees and living costs at university. Postgraduate loans are the equivalent loans for students undertaking higher level studies, such as Masters or Doctoral (e.g. PhD) qualifications.  

Where do I start? 

To set up the new employee on your payroll software: 

• use your employee’s P45 if they have had a previous job, or  
• complete the new starter checklist if they do not have a P45. 

The P45 should show existing student loan deductions and whether deductions should continue. If using a new starter checklist, the employee should tell you which repayment plan they are on.  

How will the deductions work? 

HMRC will issue an SL1 (student loan start notice) or PG1 (post-graduate loan start notice) notification to you once you have set the new employee up on your payroll. This will confirm which student loan (or Postgraduate Loan) Plan type to use when making loan deductions through payroll.  

On your payroll software, you must select the relevant plan and it should calculate the right amount of repayment each pay period for you. Currently the plans available to select for repayment are Plans 1, 2, 4, 5 and Postgraduate Loan. The student loan repayments you deduct from your employee will be paid over to HMRC alongside the income tax and National Insurance Contributions (NICs) liability you deduct from your employees via PAYE.  

HMRC will then automatically pay the student loan deductions  over to the Student Loans Company to offset your employee’s student loan balance. 

At what rate will the employee pay back their student loan? 

The rate of student loan repayments is normally 9% above the relevant threshold or 6% of the amount you earn over the threshold for the Postgraduate Loan.

What are the different plan repayment types? 

The threshold at which your employee will start to repay will depend on which repayment plan they are on. The plans are based on the type of course they attended, where they live and when they first applied for the loan. Broadly the plans can be summarised as follows

Plan 1 if they:

• Are an English or Welsh student who started an undergraduate course anywhere in the UK before 1st September 2012
• Are a Northern Irish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1st September 1998

They will only repay when their income is over £517 a week or £2,241 a month before tax and other deductions (2026/27).

Plan 2 if they are:

• An English student who started an undergraduate course, PGCE, or Advanced Learner Loan anywhere in the UK between 1st September 2012 and 31st July 2023.
• An English student who took out a Higher Education Short Course Loan on or after 1st September 2012.
• A Welsh student who started an undergraduate course or PGCE on or after 1st September 2012.

They will only repay when their income is over £565.09 a week or £2,241.66 a month before tax and other deductions (2026/27)).

Plan 4 if they:

• Are a Scottish student who started an undergraduate or postgraduate course.

They will only repay when their income is over £649.90 a week or £2,816.25 a month before tax and other deductions (2026/27). 

Plan 5 if they:

• Are an English student who started an undergraduate course or PGCE, took an Advanced Learner Loan or used Lifelong Learning Entitlement. 

They will only repay when their income is over £480.76 a week or £2,083.33 a month before tax and other deductions (2026/27). 

Postgraduate Loan repayment plan if they are an English or Welsh student who took out a:

• Postgraduate Master’s Loan.
• Postgraduate Doctoral Loan on or after 1st September 2021.

They will only repay when their income is over £404 a week or £1,750 a month before tax and other deductions (2026/27).

How we can help

At TaxAssist Accountants, we can help you sort your student loan deductions or alternatively, we can look after your payroll completely, leaving you to concentrate on the business Call 01732 221 960 or use our simple online contact form to book a free initial consultation so we can we show you how we can help.

Last updated 27 Jul 2026 | First published 29 Aug 2019

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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