There have been some recent changes to student loan deductions which all employers should be aware of. Below is guidance on the rules and the thresholds for 2021/22.
From 6 April 2021 there will be four types of student loan deductions:
- Plan 1: mainly an undergraduate loan (with some exceptions)
- Plan 2: mainly an undergraduate loan for English, Welsh and EU borrowers (plus those who took out an Advanced Learner Loan)
- Plan 4: a new type of loan which applies to Scottish students who took out a loan from the Student Award Agency for Scotland (SAAS) and is effective from 6 April 2021.
- Postgraduate: applies to English, Welsh and EU students on postgraduate courses.
The reason a borrower may have a Plan 1 or a Plan 2 loan is not by choice but is dependent on when they took out their loan. Borrowers can have more than one type of loan although they will only repay one loan type at a time of Plan 1, Plan 2 or Plan 4. However, Postgraduate loans can be repaid concurrently with any of the other plans.
The loans become repayable the April following graduation or if the borrower has dropped out of their course and borrowers have 30 years to repay a loan.
Scottish Student Loans
The new Plan 4 will apply to new, as well as existing borrowers that have been transferred from Plan 1, whose loans were provided by SAAS. The reason for the introduction of Plan 4 is that the Scottish government announced that they were raising the threshold for SAAS loans to £25,000 which was not in line with the Plan 1 threshold.
HMRC will notify employers of the new Plan 4 from the beginning of March 2021 for 2021/22 by sending a new SL1. If applicable borrowers have not been transferred from Plan 1 to Plan 4 where applicable, they will over repay their loan. But employers should wait for instructions before moving any employees to the new Plan 4.
It is important to note that the Scottish Student Loans Plan 4 will apply to all UK employers not just those based in Scotland.
The repayment period for Scottish Plan 4 loans has been shortened from 35 years to 30 years in line with England and Wales.
Borrowers can repay their loan(s) either direct or as a deduction via the payroll.
Deductions via the payroll are calculated based on NI’able earnings and only once their earnings have exceeded the relevant threshold.
Student loan deductions do not apply to pension payrolls or to Off Payroll Working deemed employees.
Employers will be notified of a student loan deduction via the payroll in three ways:
- The student loan indicator is flagged on form P45 for a new starter.
- The employee informs their employer they have a student loan(s) usually via a starter checklist.
- HMRC instruct the employer to start making deductions from the next payday by sending a start notice.
Start and Stop notices:
- SL1 is a start notice and SL2 is a stop notice for Plan 1, Plan 2 or Plan 4.
- PGL1 is a start notice and PGL2 is a stop notice for Postgraduate loans.
Student Loan Thresholds
Student Loan thresholds from 6 April 2021 have been confirmed as follows:
- Plan 1 – £19,895, earnings above this threshold will continue to be calculated at 9%
- Plan 2 – £27,295, earnings above this threshold will continue to be calculated at 9%
- Plan 4 – £25,000, earnings above this threshold will be calculated at 9%
- Postgraduate loan (PGL) – £21,000, earnings above this threshold will continue to be calculated at 6%
For further information go to:
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2021-to-2022
https://www.gov.uk/guidance/special-rules-for-student-loans
Starter Checklist – New Format
The starter checklist has been updated to reflect the new student loan Plan 4. The new format will be available from March and should be used by employers from 6 April 2021. Guidance will be updated in due course.
The student loan section of the form has been reformatted following feedback from student loan borrowers. But there may still be some instances of confusion. Borrowers need to bear in mind that student loans only become repayable from 6 April following course completion (or if they have left the course).
In the absence of the updated guidance on the completion of the student loan section of the starter checklist, here is a suggested action plan.
Remember if a new employee does not know their plan type, then the employer should enter Plan 1 onto the payroll.
| Plan type selected on (new) starter checklist | Enter onto the payroll |
| Doesn’t know plan type | Plan 1 |
| Plan 1 | Plan 1 |
| Plan 2 | Plan 2 |
| Plan 4 | Plan 4 |
| Plans 1 & 2 | Plan 1 |
| Plans 1 & 4 | Plan 1 |
| Plans 1, 2 & 4 | Plan 1 |
| Plans 2 & 4 | Plan 4 |
| Postgraduate | Postgraduate |
| Postgraduate plus Plan 1, or Plan 2 or Plan 4 | Postgraduate plus other plan |
Due to the fact that an employee can only repay Plan 1, or Plan 2 or Plan 4, if the wrong plan is being deducted, HMRC will pick this up on the RTI submission and send the employer a new SL1 but not a stop notice because the SL1 will over write the incorrect plan.
