Student Loan Plan 2: Threshold, Interest and When It's Wiped

If you started an undergraduate course in England between 1 September 2012 and 31 July 2023, or you are a Welsh student, you are almost certainly on student loan Plan 2. You repay 9% of everything you earn above the repayment threshold, interest is charged at a rate linked to RPI, and anything still outstanding is written off 30 years after the April you first became due to repay.

That combination matters more than the headline balance: most Plan 2 borrowers never clear the debt, so the loan behaves like a 9% graduate contribution for 30 years rather than a normal loan.

Key points

• Plan 2 repayments are 9% of income above the threshold — nothing on income below it.
• The 2026/27 Plan 2 annual threshold was £28,470 in 2025/26.
• Interest runs from RPI to RPI plus 3% depending on your income, and is capped by a "prevailing market rate" check.
• Any remaining balance is written off 30 years after the April you were first due to repay, or earlier on death or permanent disability.
• Overpaying only saves money if you would otherwise clear the loan in full before write-off.

Plan 1, 2, 4 or 5 — which one am I on?

Your plan type depends on where you lived when you applied and when your course started, not on how much you borrowed. The most common confusion is between Plan 1 and Plan 2, and between Plan 2 and the newer Plan 5.

• Plan 1 — English or Welsh students who started before 1 September 2012, and Northern Irish students (any start date).
• Plan 2 — English students starting from 1 September 2012 up to 31 July 2023, and Welsh students (Wales kept Plan 2 for new starters).
• Plan 4 — Scottish students funded by SAAS. Plan 1 Scottish loans were moved to Plan 4 in April 2021.
• Plan 5 — English students starting an undergraduate course on or after 1 August 2023.
• Postgraduate loan — a separate loan, repaid at 6% above its own threshold, on top of any undergraduate plan.

If you are genuinely unsure, sign in to your online student loan repayment account, which shows your plan type and balance, or check the "SLBTD"-style entry on a recent payslip. Your employer only deducts the plan type HMRC tells them about, so a wrong plan on payroll is a real risk if you have changed jobs recently.

Each plan has its own threshold, and they are all different.

Plan 2 threshold and how repayments are worked out

Plan 2 takes 9% of your income above the threshold. Nothing below the threshold is touched, and the size of your balance makes no difference to the monthly amount — only your income does.

For employees, the deduction is worked out pay period by pay period using the monthly or weekly equivalent of the annual threshold. Using the £28,470 annual figure, that is roughly £2,372 a month or £547 a week. A one-off bonus can therefore trigger a large deduction in that month even if your annual income is modest, and unlike income tax, student loan deductions are not smoothed across the year.

Worked example: two salaries

Assume an annual threshold of £28,470.

• Salary £35,000: £35,000 − £28,470 = £6,530. £6,530 × 9% = £587.70 a year, about £48.98 a month.
• Salary £60,000: £60,000 − £28,470 = £31,530. £31,530 × 9% = £2,837.70 a year, about £236.48 a month.

What it does to your marginal rate

Because the 9% sits on top of income tax and National Insurance, it changes the value of every extra pound you earn. For 2026/27 the Class 1 National Insurance main rate is 8% up to £50,270 and 2% above it, and the higher rate of income tax is 40% in England, Wales and Northern Ireland (42% in Scotland on non-savings income).

Scottish income tax rates apply to non-savings income only, but the student loan rules themselves are identical wherever in the UK you live — plan type follows where you applied for funding.

Self-employment, second jobs and investment income

If you are self-employed, the repayment is calculated on your annual profits through Self Assessment and paid with your income tax balancing payment on 31 January. It is not included in payments on account. If you have both a job and self-employment, HMRC pools the income on your return and collects any shortfall.

Two employments are a common trap: each employer applies the threshold separately, so someone with two £20,000 jobs may have no deductions taken at all even though total income is above the threshold. Any underpayment gets picked up later. Unearned income — savings interest, dividends, rental profit — is generally only counted if you complete a tax return and that unearned income exceeds £2,000, in which case the whole amount is added to your repayment income.

Salary sacrifice reduces the pay your employer reports, so it reduces student loan deductions as well as tax and NI. A personal pension contribution paid from net pay with relief at source does not reduce payroll student loan deductions, even though it can cut your tax bill — see the pension tax relief calculator for how the relief side works.

Why Plan 2 interest feels so high

Plan 2 is the only plan with income-linked interest, and it starts accruing from the day the first instalment is paid to your university — not from graduation.

• While studying: RPI plus 3%, until the April after you leave your course.
• After that: a sliding scale. RPI if your income is at or below the repayment threshold, rising gradually to RPI plus 3% once income reaches the upper income limit, with a proportionate rate in between.
• Cap: the rate is also capped so it does not exceed the prevailing market rate for comparable unsecured personal loans. That cap has held Plan 2 rates below the raw RPI-plus formula in recent years.

Rates are normally reset each September using the previous March's RPI figure.

The crucial point is that interest does not change what you pay each month. It only changes whether your balance ever falls. If 9% of your income above the threshold is less than the interest added that year, the balance grows — and for a large share of Plan 2 borrowers it grows for the whole 30 years until it is written off.

When Plan 2 is written off

A Plan 2 balance is cancelled 30 years after the April you first became due to repay, whether or not you have paid anything. That April is normally the one after you finish or leave your course.

So a 2016 graduate became due to repay in April 2017 and will see any remaining balance written off in April 2047. Leaving the UK, working abroad, taking career breaks or never earning above the threshold does not extend the 30 years — but you must keep the Student Loans Company updated on overseas income or you can be charged a fixed monthly amount.

The balance is also cancelled if you die, or if you receive a disability-related benefit and are permanently unfit for work. Write-off is not treated as taxable income.

Should you overpay a Plan 2 loan?

There is no early repayment penalty, and overpaying is worthwhile only in one situation: when you are on course to clear the loan in full before the 30 years are up. If the balance will be written off anyway, every extra pound you pay in is a pound you simply lose, because voluntary payments cannot be refunded.

The break-even test

Work out the interest your balance attracts in a year and compare it with 9% of your income above the threshold. Suppose the balance is £50,000 and interest is running at 7% — that is £3,500 of interest for the year. To make any dent in the principal you need 9% of the excess over the threshold to beat £3,500:

• £3,500 ÷ 0.09 = £38,889 of income above the threshold
• £38,889 + £28,470 = about £67,400 of income just to stand still

Below that income, the balance keeps growing however long you pay. Well above it — a high and rising salary with a modest balance, no career break planned, and a decade or more of the 30 years already gone — full repayment becomes realistic and overpaying can save real interest.

Points people usually weigh

• Time already served. Someone 22 years into their 30 has only 8 years of exposure left; someone 3 years in has 27.
• Expected earnings path. Career breaks, part-time work or a move to lower-paid work all push the write-off outcome closer.
• Alternative uses of the money. Higher-rate pension relief, employer matching, clearing credit card debt or an ISA all compete for the same cash. The ISA allowance is £20,000 for 2026/27.
• Cash flow. Overpayments are irreversible; an emergency fund is not.
• Not a credit-file debt. Plan 2 does not appear on your credit report, though lenders count the monthly deduction when assessing affordability.

There is also a policy risk to keep in mind: thresholds and terms have been changed before. Announcements on freezing repayment thresholds would slowly increase what borrowers pay in real terms.

Common Plan 2 errors worth checking

• Wrong plan on payroll. Deductions at Plan 1 or Plan 5 thresholds instead of Plan 2 mean you pay too much or too little.
• Deductions continuing after the loan is cleared. Switch to direct debit in your final year of repayment so the Student Loans Company can stop collection at the right point.
• Deductions before the first April. Nothing is due until the April after you leave your course, even if you are already earning above the threshold.
• Refunds for a below-threshold year. If your annual income ended up under the threshold but a bonus month triggered deductions, a refund can be requested.

What to do next

Put your salary into the student loan repayment calculator to see the monthly Plan 2 deduction and how it changes with a pay rise or bonus, then use the income tax calculator to see the full picture of tax, National Insurance and the 9% together. If you want to check your balance, plan type or request a refund, sign in to your account through GOV.UK's repaying your student loan service.