A new student loan repayment band, known as Plan 5, will start to impact payrolling from April 2026 for borrowers who began courses on or after 1 August 2023.
As an employer, you should be aware of how this may specifically impact your employees, as there are increasing concerns that even those on minimum wage may soon be unable to avoid repayments.
How will the new Plan 5 payment structure work?
Of all of the student loan repayment structures, Plan 5 has the lowest threshold of repayment and will serve to ensure that most people in full-time work on that plan will be repaying their student loans.
The thresholds for Plan 5 are £25,000 per annum, £2,083 per month and £480 a week.
If any are met, loan payments will be automatically deducted from their pay.
When income falls below that threshold, the Student Loans Company (SLC) will automatically stop taking payments.
It is important that employers monitor the payroll records of employees to ensure that the correct loans are being repaid when thresholds are crossed.
Why is Plan 5 causing so much concern?
As mentioned, fiscal drag means that most graduates who find themselves in full-time work will have to make student loan repayments regardless of their wages.
At the moment, the National Living Wage (NLW) equates to £23,809 per annum, up from £22,308 per annum in 2024.
If this wage increases by the same amount for the 2026 tax year, it will not be possible to earn a full-time wage without crossing the threshold for Plan 5, as even NLW will likely be above £25,000 per annum.
Student loans were supposed to be repaid by graduates upon entering graduate roles with graduate salaries, rather than weighing down those who were yet to see the economic benefits of their degrees.
The extra financial pressures will result in more payroll complications for businesses unused to managing student loans and a reduction in spending power among graduates.
This means there may be a payroll compliance crisis if businesses that mostly pay NLW and the National Minimum Wage are unaware of the changing thresholds.
As such, we are working to ensure that all businesses understand their payroll obligations so that employees can feel secure in their work and not have to worry about the administrative burden of loan repayments.
Speak to our team today to find out how your payroll obligations may be changing in the near future.
