Student Loan Repayments Explained: Plan 2 vs Plan 5 and What You'll Actually Repay

Student loan repayments work fundamentally differently from other debt - there’s no fixed monthly bill, the loan doesn’t appear on your credit file (though mortgage lenders will factor repayments into affordability), and for most graduates, a real chance the loan is written off before it’s fully repaid - in sharp contrast to conventional debt like a mortgage or credit card, where falling behind usually means a very different, considerably more urgent conversation with your lender. Here’s exactly how the current plans compare.

The basic mechanism

Student loan repayments are collected at 9% of your income above a specific threshold (6% for postgraduate Plan 3 loans), deducted automatically through PAYE if you’re employed, or via Self Assessment if self-employed. You pay nothing at all if your income is below the threshold for your plan.

The 2026/27 thresholds and rates by plan

• Plan 1 (mostly pre-2012 English/Welsh students, and all Northern Ireland students): threshold £26,900, interest rate 4.1%.
• Plan 2 (English and Welsh students starting 2012–2023): threshold £29,385. Interest normally ranges from RPI (4.1%) to RPI + 3% (7.1%) depending on income, but is capped at 6% from 1 September 2026 to 31 August 2027.
• Postgraduate Loan (Master’s/Doctoral loans, often called ‘Plan 3’): threshold frozen at £21,000, repaid at 6% rather than 9%. Interest is normally RPI + 3% (7.1%), capped at 6% from 1 September 2026 to 31 August 2027.
• Plan 4 (Scottish students): threshold £33,795, interest rate 4.1%.
• Plan 5 (English students starting from August 2023 onwards): threshold £25,000 (2026/27 is the first year repayments are due for this cohort), interest rate 4.1% (RPI only, no additional margin).

Why Plan 5 is structurally different: lower interest

Plan 5’s interest rate is set at RPI inflation only, with no additional ‘real interest rate’ margin - unlike Plan 2, which can add up to 3 percentage points on top of RPI depending on income (temporarily capped at 6% overall from September 2026). This means Plan 5 balances grow more slowly, and because interest only ever tracks inflation, no Plan 5 borrower can end up repaying more than they borrowed in real terms. Under Plan 2, higher earners who clear their loan typically do repay more than they borrowed in real terms.

The trade-off: a lower threshold and a longer write-off period

Plan 5 loans are written off after 40 years, compared with 30 years for Plan 2 - a longer period during which repayments continue. Combined with Plan 5’s lower repayment threshold (£25,000 versus Plan 2’s £29,385), more of a Plan 5 graduate’s income is subject to repayment, for longer. The Institute for Fiscal Studies found that, compared with the Plan 2 system, this makes Plan 5 cheaper for the highest earners but more expensive for low and middle earners - with lower-middle earners facing the largest increase in lifetime repayments.

Why most graduates never fully repay their loan

For Plan 2 specifically, the Institute for Fiscal Studies estimates that just under half (around 49%) of borrowers from the 2022 entry cohort will repay their loan in full, meaning slightly more than half will still have a balance written off at the 30-year point. For those borrowers, the loan functions in practice more like a graduate income-related tax than a conventional debt. Even among those who never clear their balance, many middle earners still repay more in cash terms than they originally borrowed, because interest keeps being added throughout the 30 years.

Why the threshold freeze matters (fiscal drag, again)

The government announced at the 2025 Autumn Budget that the Plan 2 repayment threshold will be frozen at £29,385 for three years from April 2027, rather than rising with inflation as previously intended - meaning more of borrowers’ income becomes subject to the 9% repayment rate each year as wages grow, even without any change to the loan terms themselves. The Institute for Fiscal Studies estimates this freeze alone will increase average lifetime repayments for the 2022 entry cohort by around £3,000 in today’s prices.

Should you make voluntary extra repayments?

For most graduates on modest to average salaries who are unlikely to clear their Plan 2 or Plan 5 balance before the write-off date, voluntary overpayments simply reduce the amount that would eventually have been written off anyway - effectively donating money that provided no real benefit. Voluntary overpayments only make financial sense for high earners genuinely on track to repay their full balance well before the write-off period, where clearing the debt sooner reduces the total interest paid over time.

The bottom line

Student loans repay based on income, not the amount borrowed, and for the majority of graduates, a portion of the balance will eventually be written off rather than fully repaid - understanding which plan you’re on, and your own realistic lifetime earnings trajectory, matters far more than focusing on the headline balance shown on your statement.