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Introduction to this document

Letter to employee concerning student loan deductions

If an employee with a student loan has informed you that they’ve just paid off the balance of their loan with a lump sum, you still need to continue to make deductions. Use our letter to make the position clear.

The system

The Student Loans Company (SLC) administers repayments from about three million students no longer in higher education, so it’s possible that one of these might be working for your company. However, it’s HMRC, not the SLC, which actually collects the repayment of these loans. Former students start repaying once their income is more than a certain amount per year. Once an employee’s income exceeds this figure, you as the employer must deduct 9% of their income and pay it over to HMRC.

HMRC will advise you when deductions should start (Notice SL1) and stop (Notice SL2). However, HMRC and the SLC only talk to each other at the end of each tax year. So no information regarding repayments, balances and collection is passed between the SLC and HMRC other than during this annual transfer. The SLC has admitted that there is an "imperfection in the system" which means that a former student who makes their final loan repayment in, say, May, could potentially continue to have money debited from their pay packet for another eleven months!

SLC is responsible

Unlike most debts, where you can cancel repayments by stopping a direct debit, repayments for student loans are made through the tax system and it's impossible for the employee to cancel them. Once employees realise that they have overpaid and have notified the SLC, it can take months for repayments to stop and a refund to be issued. Neither you nor HMRC are responsible for refunding any overpayments. This has to come direct from the SLC to the former student.

So don’t stop making deductions just because your employee asks you to; you have to wait until you get the stop notice from HMRC. Issue a Letter To Employee Concerning Student Loan Deductions explaining the situation and what they need to do to receive a repayment. The SLC will have to issue a stop notice to HMRC for them to pass on to you. You can then confirm to the employee that no more deductions will be made from their salary.