Student Loan Thresholds

The UK Government introduced a new default student loan repayment plan, Plan 5, effective from 6 April 2026. This update changes the landscape for employers who must now navigate multiple student loan plans and postgraduate loan repayments. Understanding these changes is essential for employers to ensure accurate payroll deductions and compliance with HMRC requirements.

Overview of Student Loan Repayment Thresholds for 2026-27

For the tax year 2026-27, the repayment thresholds for the different student loan plans are as follows:

• Plan 1: £26,900 annually (£2,241.66 monthly or £517.30 weekly)

• Plan 2: £29,385 annually (£2,448.75 monthly or £565.09 weekly)

• Plan 4: £33,795 annually (£2,816.25 monthly or £649.90 weekly)

• Plan 5: £25,000 annually (£2,083.33 monthly or £480.76 weekly)

  
  

Employees repay 9% of their earnings above these thresholds for all four plans.

For postgraduate loans, the threshold is £21,000 annually (£1,750 monthly or £403.84 weekly), with repayments at 6% of earnings above this level.

What Employers Need to Know About Plan 5

Plan 5 is now the default student loan plan for new borrowers from April 2026. It has the lowest repayment threshold among the plans, set at £25,000 annually. This means employees on Plan 5 will start repaying their loans at a lower income level compared to other plans.

Employers must be aware of this change because it affects payroll deductions. If an employee is on Plan 5, deductions should begin once their earnings exceed £25,000 per year.

Identifying Employees with Student Loans or Postgraduate Loans

Employers have a responsibility to confirm whether employees have a student loan or postgraduate loan and which plan applies. This ensures the correct repayment deductions are made promptly.

Employers should check for the following notifications or confirmations:

• P45 form from a new employee indicating student loan deductions should continue, marked with a ‘Y’. Employers must verify the loan plan type.

• Employee disclosure during onboarding, where the employee informs the employer about their student loan status and plan.

• Starter checklist completed by the employee, which now includes Plan 5 as an option.

• HMRC notices such as SL1 (student loan start) or PGL1 (postgraduate loan start), which specify the loan type and plan.

• Generic Notification Service (GNS) messages from HMRC about student or postgraduate loans.

  
  

Employers must act on these notifications immediately and start deductions from the next pay period.

Practical Steps for Employers

To manage the new Plan 5 and other student loan plans effectively, employers should:

• Update payroll systems to include Plan 5 thresholds and repayment rates.

• Train payroll staff on the differences between plans and the importance of accurate deductions.

• Communicate with employees during onboarding to confirm loan status and plan type.

• Monitor HMRC notifications regularly to catch any changes or new loan starts.

• Review payroll deductions periodically to ensure compliance and accuracy.

  
  

For example, if an employee earns £30,000 annually and is on Plan 5, the repayment calculation would be 9% of £5,000 (£30,000 - £25,000), resulting in a £450 annual repayment, deducted monthly or weekly as appropriate.

Why This Matters

Accurate student loan deductions protect both employers and employees. Employers avoid penalties for incorrect payroll processing, and employees ensure their loan repayments are correct, preventing overpayments or underpayments.

With Plan 5’s lower threshold, some employees might start repaying sooner than under previous plans. Employers must be proactive to handle this change smoothly.