Student Loan Repayments: A Guide for Employers 2026/27

Managing student loan deductions through payroll forms a legal duty for every employer. From April 2026, new repayment thresholds apply, and Plan 5 deductions begin for the first time. The 2026/27 tax year brings important updates that payroll teams must apply with care.

This guide sets out the rules, thresholds, repayment rates and employer actions for the year ahead.

How Student Loan Repayments Work

Student loan repayments operate through the PAYE system. Employers deduct repayments automatically from an employee’s gross pay, which means pay before tax and National Insurance.

HMRC issues a start notice when an employee has an outstanding loan. Once received, the employer must process deductions through payroll. Payroll software calculates the correct amount each pay period. The employer must ensure the employee sits on the correct loan plan.

Deductions apply per pay period, not annually. Weekly or monthly pay cycles determine the calculation. A bonus can trigger a deduction in that pay period if earnings exceed the threshold.

Repayment Rates for 2026/27

Repayment rates depend on the loan plan:

• Plans 1, 2, 4 and 5: 9% of income above the threshold
• Plan 3 (Postgraduate Loans): 6% of income above the threshold

Employers calculate the deduction only on earnings above the relevant threshold.

2026/27 Repayment Thresholds

From 6 April 2026, the confirmed thresholds are:

Payroll systems must reflect these figures from April 2026.

Which Plan Applies

Understanding the correct plan avoids incorrect deductions.

Plan 1

Applies to students who started before September 2012 in England and Wales, and all students from Northern Ireland.

Plan 2

Applies to English and Welsh students who started between September 2012 and July 2023.

Plan 4

Applies to Scottish students.

Plan 5

Applies to students in England who started a course on or after 1 August 2023.

Plan 3

Applies to postgraduate master’s and doctoral loans.

An employee may hold both an undergraduate loan and a postgraduate loan at the same time. In that case, employers must deduct both amounts if earnings exceed the relevant thresholds. The postgraduate deduction runs alongside the undergraduate repayment and does not replace it.

Plan 5 from April 2026

April 2026 marks the first Plan 5 repayments. This plan applies to students in England who started a course on or after 1 August 2023.

Employers will receive start notices for affected staff. Payroll teams must prepare systems to process Plan 5 deductions alongside any other loan plans an employee holds.

Plan 5 differs from Plan 2 in several ways:

• Lower threshold at £25,000
• Interest based solely on RPI, with no additional percentage
• Loan write-off after 40 years
• Plan 2 write-off after 30 years

Plan 2 Threshold Freeze

From April 2026, the Plan 2 threshold increases to £29,385. From April 2027 to April 2030, that figure remains frozen.

As wages rise while the threshold stays fixed, more graduates move into repayment. This effect, known as fiscal drag, increases deductions over time. Employers may receive queries linked to this change during pay reviews and bonus discussions.

Interest Rates for 2026/27

Interest rates update each year on 1 September. Rates use the Retail Prices Index from the previous March.

For the period 1 September 2025 to 31 August 2026, the applicable RPI rate stands at 3.2%.

Self-Employed Workers

Self-employed individuals do not repay through payroll.

Repayments form part of the Self Assessment tax bill and fall due on 31 January after the end of the tax year.

What Employers Should Do

Payroll teams should:

• Update software with the 2026/27 thresholds from 6 April 2026
• Set up Plan 5 deductions for relevant employees
• Monitor HMRC start notices for new Plan 5 cases
• Confirm correct setup for employees with more than one loan plan
• Prepare for employee questions linked to the Plan 2 freeze from April 2027

Final Note

The 2026/27 tax year introduces Plan 5 and updated thresholds across all plans. Accurate payroll configuration protects both employer and employee, reduces errors and ensures full compliance with HMRC requirements.

Clear processes now will support smooth payroll management throughout the year.