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Income tax, National Insurance and net pay for any UK salary, 2026-27.
UK borrowers owed £266.6 billion in higher education student loans at the end of the 2024-25 financial year, and 5.7 million of them were still repaying [1]. For most of those borrowers, repayment happens invisibly, deducted from pay by an employer and passed to HMRC alongside tax and National Insurance.
That makes the student loan deduction a routine but error-prone part of running payroll. The rules changed on 6 April 2026 with the arrival of Plan 5, five repayment plans now run in parallel, the postgraduate loan sits on a different rate, and a single misread notice can mean deducting from the wrong threshold for months [2].
This article sets out the five plans and their 2026-27 thresholds, how a deduction is calculated, how notices start and stop a deduction, how the figures are reported to HMRC, the priority rule when an employee carries two loans, and why off-payroll contractors are handled differently. The figures throughout are for the 2026-27 tax year.
Key takeaways
- Five student loan types run through payroll: Plans 1, 2, 4 and 5, plus the Postgraduate Loan.
- Plans 1, 2, 4 and 5 deduct at 9% above their threshold; the Postgraduate Loan deducts at 6% above a separate threshold.
- Plan 5 is new from 6 April 2026, with a £25,000 annual threshold.
- Deductions start on an SL1 or PGL1 notice and stop only on an SL2 or PGL2 notice, never on the employee's request.
- When an employee has both a plan loan and a Postgraduate Loan, both are deducted, and there is no Plan 3.
The five repayment plans, and why there is no Plan 3
An employer deducts a student loan only when the employee is liable under one of the recognised plans, and the plan determines the threshold above which 9% is taken. The absence of a Plan 3 is a frequent source of confusion, because the numbering skips from Plan 2 to Plan 4 [3].
The table below sets out the 2026-27 annual thresholds and rates for all five loan types.
| Loan type | Annual threshold | Monthly threshold | Rate |
|---|---|---|---|
| Plan 1 | £26,900 | £2,241.66 | 9% |
| Plan 2 | £29,385 | £2,448.75 | 9% |
| Plan 4 | £33,795 | £2,816.25 | 9% |
| Plan 5 | £25,000 | £2,083.33 | 9% |
| Postgraduate Loan | £21,000 | £1,750.00 | 6% |
The spread between the plans is wide enough to matter. An employee earning £35,000 repays around £729 a year on Plan 1 but only about £108 a year on Plan 4, because the Plan 4 threshold sits almost £7,000 higher [4].
Plan 1, Plan 2 and Plan 4
Plan 1 covers pre-2012 English and Welsh borrowers, Scottish borrowers and Northern Irish borrowers, with a £26,900 threshold for the 2026-27 tax year [5]. Plan 2 covers English and Welsh borrowers who started courses from 2012, with a higher £29,385 threshold [6].
Plan 4 applies to Scottish borrowers and carries the highest threshold of the group at £33,795, which is why a Scottish borrower on the same salary repays less than a Plan 1 or Plan 2 borrower [7]. All three deduct at 9% on earnings above the threshold, so the only variable between them is where the threshold sits [8].
Plan 5, new from 6 April 2026
Plan 5 is the newest loan type, introduced on 6 April 2026 for English students who started courses from the 2023-24 academic year, with a £25,000 annual threshold and the same 9% rate [9]. Payroll software had to be updated to accept Plan 5 start notices from the beginning of the 2026-27 tax year, because a borrower on the wrong plan is deducted against the wrong threshold [10].
Plan 5 also carries a practical consequence for new starters whose plan is unknown. The safe default is now Plan 5, because at £25,000 it has the lowest threshold of the ordinary plans, so it never under-deducts against Plans 1, 2 or 4 [11]. An employer running HMRC-recognised payroll software has the current Plan 5 threshold applied automatically once the plan is set [12].
The Postgraduate Loan, a 6% deduction on a separate threshold
The Postgraduate Loan is the one loan type that breaks the 9% pattern. It is deducted at 6% on earnings above a £21,000 annual threshold, the lowest threshold of any loan type [13]. It covers master's and doctoral borrowers and runs alongside an ordinary plan loan rather than replacing it [14].
Because the rate and threshold both differ, the Postgraduate Loan is calculated as a completely separate deduction on the same payslip, not folded into the plan figure [15]. Mixing the two is a common manual error, and it is one of the reasons the deduction is better handled by software than by hand [16].
How a student loan deduction is calculated
The deduction is based on the same gross pay figure used for the employer's secondary Class 1 National Insurance, which keeps the student loan calculation anchored to a figure the payroll already computes [17]. Only earnings above the period threshold are counted, and the deduction never reaches back to earlier periods, so deductions are never made in arrears [18].
The period threshold and the rate
The annual threshold is divided by the number of pay periods in the year, rounding down to the penny where needed, to produce the threshold for that period [19]. The deduction is then the rate, 9% for Plans 1, 2, 4 and 5 or 6% for the Postgraduate Loan, applied to earnings above that period threshold, with the result rounded down to the nearest whole pound [20].
The whole-pound rounding is always downward, never to the nearest pound, so a calculated deduction of £49.61 becomes £49 [21]. Reporting on the Full Payment Submission uses that whole-pound figure, and the year-end P60 shows student and postgraduate loan deductions in whole pounds only [22].
Worked examples across the plans
The table below shows the monthly deduction for an employee earning £3,000 a month across the ordinary plans, and for a Postgraduate Loan on the same salary, using the 2026-27 thresholds.
| Loan type | Monthly pay | Period threshold | Excess | Deduction (rounded down) |
|---|---|---|---|---|
| Plan 1 | £3,000 | £2,241.66 | £758.34 | £68 |
| Plan 2 | £3,000 | £2,448.75 | £551.25 | £49 |
| Plan 4 | £3,000 | £2,816.25 | £183.75 | £16 |
| Plan 5 | £3,000 | £2,083.33 | £916.67 | £82 |
| Postgraduate Loan | £3,000 | £1,750.00 | £1,250.00 | £75 |
The same salary produces very different deductions, from £16 on Plan 4 to £82 on Plan 5, which is why identifying the correct plan matters as much as the arithmetic [23]. The deduction is also recalculated every period against that period's earnings, so a bonus month produces a larger deduction and a low-earning month may produce none [24].
Starting and stopping deductions
An employer does not decide when a student loan deduction begins or ends. HMRC controls both through formal notices, and the employer's job is to action them from the correct payday [25].
SL1, PGL1 and the start triggers
A deduction starts from the next available payday when the employer receives an SL1 start notice for a plan loan or a PGL1 start notice for a Postgraduate Loan, each of which names the type to operate [26]. A new starter can also trigger a deduction through a P45 marked to continue, their own confirmation, or a starter checklist, before any notice arrives [27].
HMRC issues SL1 and PGL1 notices automatically when a new employment is reported, even where the employer has already begun deducting, and it sends a corrected start notice if the wrong plan is in use [28]. When a corrected notice shows a different plan, the employer switches to it from the next available payday rather than adjusting earlier periods [29].
SL2, PGL2 and when deductions must stop
A deduction stops on the first available payday after the stop date on an SL2 notice for a plan loan or a PGL2 notice for a Postgraduate Loan [30]. HMRC can also instruct an employer to stop in writing in exceptional cases, but the one thing that does not stop a deduction is the employee asking for it to stop [31].
An employee who believes they have overpaid, because they are close to clearing the balance, must take that up with the Student Loans Company for a refund rather than with the employer [32]. Continuing to deduct until a valid stop notice arrives is the compliant position, and stopping early exposes the employer to a correction [33].
Student loans and the rest of payroll
A student loan deduction is not a standalone calculation. It has to be reported correctly through Real Time Information and carried across employments on the right forms.
Reporting on the FPS and the P60
Student and postgraduate loan deductions are entered in their own boxes on each employee's Full Payment Submission, the Real Time Information return an employer sends on or before payday [34]. Payroll software that holds the HMRC Recognised badge submits these figures on the FPS automatically, which is the same mechanism that reports tax and National Insurance [35].
At year end, the deductions appear on the employee's P60 in whole pounds, and the employer keeps records of the calculations and of every SL1, PGL1, SL2 and PGL2 notice for at least three years after the end of the tax year [36]. Accountants handling this across many schemes often rely on a payroll bureau platform to keep each client's notices and deductions aligned [37].
The P45 and new starter rules
When an employee leaves, the P45 carries the student loan status forward. If box 5 on the incoming P45 shows "Y", the new employer continues deducting and marks "Y" on the P45 it later issues, even if the employee has not yet earned above the threshold [38]. Where a stop notice applies or the start date falls after the employee leaves, box 5 is left blank [39].
Deductions also cease entirely on death: no student loan deduction is taken from any payment made after the date of death, including pay for earlier work, accrued holiday or a final bonus [40]. These edge cases are where manual payroll most often slips, because they sit outside the routine monthly calculation [41].
The priority rule when an employee has two loans
Many borrowers carry both an undergraduate plan loan and a Postgraduate Loan, and payroll has to handle both at once rather than choosing between them.
Postgraduate loan deducted alongside a plan loan
Where an employee has both a plan loan and a Postgraduate Loan, the employer operates both deductions on the same payslip, each against its own threshold and at its own rate [42]. On a £3,000 monthly salary, a Plan 2 borrower who also holds a Postgraduate Loan would see a £49 plan deduction and a separate £75 postgraduate deduction, a combined £124 [43].
Where a court order with a protected earnings level is in play, the Postgraduate Loan takes priority over the plan loan, reflecting the higher interest the postgraduate balance carries [44]. Outside that scenario, both deductions simply run in parallel every period [45].
The default plan when the type is unknown
If a new employee confirms a student loan but does not know the plan, the employer defaults to Plan 5 until an SL1 notice confirms the correct type, because Plan 5 has the lowest threshold of the ordinary plans and therefore avoids under-deducting [46]. This default applies only to the choice between Plans 1, 2, 4 and 5, not to the Postgraduate Loan, which is only ever operated on a PGL1 notice or a P45 instruction [47]. An embeddable payroll API applies this default automatically so a missing plan type never stalls a payrun [48].
Student loans and off-payroll working
Off-payroll contractors are the one group whose student loan is not collected through the engager's payroll, and misunderstanding this is common among businesses that hire through intermediaries.
Why the engager does not deduct
For a worker inside the off-payroll working rules, often called IR35, the deemed employer accounts for tax and National Insurance on the deemed payment, but student loan deductions are not part of that calculation [49]. The engager therefore does not operate a student loan deduction for a deemed employee, even though it runs PAYE on the deemed payment [50].
This is a structural feature of the deemed-employment model, not an exemption the worker claims, and it holds regardless of how the contract is framed, as the wider off-payroll working rules set out [51]. Treating a deemed employee like an ordinary employee for student loan purposes is a known error in off-payroll payrolls [52].
Self assessment for the contractor
The contractor settles the student loan obligation through self assessment, reporting it on their own tax return rather than having it deducted at source [53]. The repayment is still due; it simply flows through a different channel, and the borrower accounts for it when they file [54]. Businesses that mix direct employees with off-payroll contractors therefore run two different student loan treatments side by side, and the distinction belongs in the onboarding process, not in the monthly payrun [55].
Check take-home pay with a student loan deduction
An employer or employee working out how a student loan deduction changes take-home pay can model it with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Student loan repayment looks simple from the outside, a fixed percentage above a threshold, but the detail is where payroll goes wrong: five loan types, two different rates, a postgraduate loan that runs in parallel, whole-pound rounding, and a set of notices that control exactly when a deduction starts and stops. The arrival of Plan 5 on 6 April 2026 added a sixth variable and reset the safe default for an unknown plan.
The structural point for any payroll operation is that the employer never exercises discretion here. HMRC decides the plan, the notice decides the timing, and the specification decides the arithmetic. The employer's task is to action notices promptly, apply the right threshold, and report the result on the FPS. As more borrowers enter repayment on Plan 5 in the years ahead, getting that process right at the point of onboarding, rather than correcting it later, is what keeps a payroll clean.
Frequently asked questions
What are the student loan repayment thresholds for the 2026-27 tax year?
For the 2026-27 tax year, the annual thresholds are £26,900 for Plan 1, £29,385 for Plan 2, £33,795 for Plan 4 and £25,000 for Plan 5, all deducting at 9% above the threshold. The Postgraduate Loan threshold is £21,000, with deductions taken at 6%. Deductions apply only to earnings above the relevant threshold in each pay period.
Why is there no student loan Plan 3?
There is no Plan 3 because the numbering was never continuous. Plan 1 and Plan 2 cover different cohorts of English and Welsh borrowers, Plan 4 was introduced for Scottish borrowers, and Plan 5 arrived on 6 April 2026 for the most recent English intake. The gap is purely a naming artefact, not a missing loan type.
Can an employer stop a student loan deduction if the employee asks?
No. A student loan deduction stops only on a valid SL2 or PGL2 notice from HMRC, or a written HMRC instruction in exceptional cases. An employee who thinks they have nearly cleared their balance should contact the Student Loans Company about a refund. The employer must keep deducting until an official stop notice arrives.
How are student loans handled for IR35 contractors?
For workers inside the off-payroll working rules, the engager accounts for tax and National Insurance on the deemed payment but does not deduct the student loan. The contractor repays through self assessment on their own tax return instead. Treating a deemed employee like a direct employee for student loan deductions is a common and avoidable error.
