Student loans

Student and postgraduate loans are a form of financial support available to students carrying out a course of higher education in the United Kingdom. Any outstanding student or postgraduate loans that an employee took out after August 1998 are repayable through the payroll system.

There are two types of student loan repayment plans. The SL1 notification you receive from HMRC specifies which repayment plan the employee is to be on.

The repayments deduct based on the following thresholds:

Rates for 2020/21

Type Weekly (£) Monthly (£) Annual (£) Rate (%)
Plan type 1 372.88 1615.83 19,390 9.00
Plan type 2 511.05 2214.58 26575 9.00
Postgraduate 403.84 1750 21000 6.00

Note: If you’re not sure which plan type to select, please visit the GOV.UK website.

Student loans aren’t deducted unless the employee’s earnings for NI are over the threshold set by HMRC.

For more information about student loans, refer to the HMRC SL3 Student Loan Deductions tables or the E17 Collection of Student Loans helpbooks.

When to start and stop applying the student loan deduction

There are a number of ways that you might be notified to start making student loan deductions:

  • You receive a Start Notice, form SL1, from HMRC either by post or electronically if you’re registered for PAYE online. The start date will be at least six weeks from the date of issue.
  • A new employee gives you form P45 and there’s a Y in the Student Loan deductions box.
  • A new employee provides you with a Starter Checklist form and they ticked Yes to say they have an unpaid student loan.

If a new employee provides a P45 or Starter Checklist that indicates they have an unpaid student loan and you’re unsure which type, please contact the HMRC Employer Helpline on 0300 200 3200.

When you need to stop making deductions, HMRC will send:

  • A form SL2 Stop Notification either by post or electronically.
  • If you need to stop making deductions quickly, HMRC may request you to stop by phone or letter.
  • If a teacher gives you a letter from the Student Loans Company stating they’ve been accepted on the Repayment of Teachers’ Loan scheme.

You must continue to make student loan deductions from an employee until you receive one of the items listed, or the employee leaves your employment.

Student loan repayments and holiday pay

Holiday pay is subject to student loan repayments. The student loan deduction is treated in the same way as national insurance deductions.

For more information on repaying a student loan, please visit the repaying your student loan page on GOV.UK

Once the employee has finished repaying the student loan you can remove the deduction by selecting the X to the left of the student loan when processing the next pay run.

Set up Student loan deduction

You can set up a student loan deduction just like any other deduction:

  1. Go to Settings, then click Payment & Deduction Settings.
  2. Click the Deductions tab, then click Create New Deduction.
  3. Complete the following:
Deduction Category Click Student Loans.
Deduction Type Click either Student Loan (Plan 1) or Student Loan (Plan 2).

  1. Edit the name and description, if required.
  2. Click Save.

You’ve now set up the deduction and you can apply it at the Edit Pay stage of a pay run, when you pay the employee.

Set up Postgraduate loan deduction

You can set up a postgraduate loan deduction just like any other deduction:

  1. Go to Settings, then click Payment & Deduction Settings.
  2. Click the Deductions tab, then click Create New Deduction.
  3. Complete the following:
Deduction Category Click Student Loans.
Deduction Type Click Postgraduate Loan (PGL).

  1. Edit the name and description, if required.
  2. Click Save.

You’ve now set up the deduction and you can apply it at the Edit Pay stage of a pay run, when you pay the employee.

Remove a student loan deduction

Once the employee has finished repaying the student loan, remove the deduction from the pay run.

The next time you process the pay run, select the X to the left of the student loan.