New data from SLC shows the work involved in dealing with PAYE inflexibility and poor information from employers
We have a very complicated student loan repayment system. Or, more accurately, a very complicated set of systems: with five active in England alone – each with different repayment thresholds, interest rates, and various other rules and conditions.
With this degree of complexity it is inevitable that there will be problems – as documented in today’s SLC release. The information used in collecting repayments via the pay-as-you-earn (PAYE) tax system is provided by employers who have varying levels of expertise in what repayments are required for which graduates and when. Student finance is not the central concern of your payroll, human resources, or finance teams; and yet it is these people who ensure that the right repayments are made at the right time.
Imagine that you are employing a very well qualified English-domiciled young person with an undergraduate degree (Plan 2) and a postgraduate qualification (Plan 3) too. Plan 2 repayments begin when salary reaches £28,470 based on a persons salary above that amount, while Plan 3 starts at £21,000 and applies to earnings above that rate. To ensure that all this happens correctly, as an employer you are asked to complete the HMRC employer checklist which means that you ask your graduate about their plan type, the date they began study, the date they began repaying their loan (if they already have), and if their loan has already been repaid. However, this is not a mandatory checklist, and many employers don’t bother.
As a default, the HMRC guidance asks employers to deduct using Plan 1 rules (if the graduate doesn’t know which plans apply: or if they’ve lost the SLC letter that tells them). HMRC systems then identify an incorrect plan type, which is (hopefully) corrected from the next pay date. In the 2025-26 tax year (effective 30 September) there were 14,522 instances where people made an incorrect payment because the employer used the wrong plan: resulting in £4.6m of payments made.
One impact of being on the wrong plan for all of some of your loans is that you might make an early repayment: the statutory repayment due date is the point at which someone becomes liable to make repayments if they earn above the threshold (generally the April after they graduate, but the April four years after the course started for part-time or postgraduate doctoral courses longer than four years in duration). Again, if a mistake is made here repayments are taken when they shouldn’t be: there were 35,565 instances of this in 2025-26 at a total repayment value of £6m .
Employers also probably hold some culpability (in a different way) for when graduates make a correct in year payment but ultimately earned less than the annual repayment threshold. Whether or not someone repays is calculated based on monthly (or weekly or whatever) salary, but there is also a check made based on HMRC data at the end of the tax year. This is particularly likely to happen where someone starts new employment, or ends previous employment, during the tax year. Which is a remarkably common occurrence: it happened on more than a million occasions in the 2025-26 tax year, at a total value of £155m.
The final source of incorrect repayments is where money is taken after the loan has been repaid in full. This generally happens because of an issue with PAYE deductions: the tax system isn’t smart enough to react automatically to a repayment in someone’s last month being necessarily smaller than preceding payments: it just takes the “normal amount” and it is down to SLC to notice this, issue a “stop notice” to HMRC and the employer, and then trigger an automatic refund where it has the graduates bank details (or SLC writes to the graduate if it does not).
For this reason, SLC also writes to graduates a few months before the end of the scheme to invite them to move from PAYE repayments to a direct debit (which is makes it easier to manage the different amount for the final deduction). This relies on SLC having up-to-date contact details for the graduate, on the graduate actually reading their post/email, and on them actually responding to SLC to make the shift happen. Not always easy.
So in 2025-26 SLC refunded £26.8m to 76,100 customers who had fallen into this particular trap. It is, as SLC makes clear, entirely avoidable.
Repayments to student loans are onerous enough, but there is also a significant administrative burden: to employers, to graduates, to HMRC, and to SLC. While the financial burden is the important one (and long overdue government policy action to address), the administrative burden makes an unpleasant obligation actively onerous. SLC is passionate about making these bits as painless as possible, but they are constrained by the rules ministers make (and remake) and the creaking nature of the UK tax infrastructure.