Independent briefing · 8 minute read

Plan 2 student loans explained

Thresholds, the income-based interest scale, Wales vs England and the write-off test, with worked figures from the verified rules.

Editorial record

Last reviewed: 7 August 2026
Purpose: General information, independently produced

Who is on Plan 2?

You are on Plan 2 if Student Finance England funded your undergraduate course, PGCE or Advanced Learner Loan and it started between 1 September 2012 and 31 July 2023, or if Student Finance Wales funded your undergraduate course or PGCE starting on or after 1 September 2012, with no end date, because Wales did not adopt Plan 5. Your plan is fixed by your funding authority and start date; it does not change when you move jobs, earn more or move country.

Started before 1 September 2012 in England or Wales? You are on Plan 1. Funded by Student Finance England from 1 August 2023? You are on Plan 5. Funded by SAAS in Scotland? You are on Plan 4. A master's or doctoral loan from England or Wales is the separate Postgraduate Loan, which repays alongside Plan 2, not instead of it. Not sure? Work through which plan am I on.

Source: Repaying your student loan: Which repayment plan you’re on.

Plan 2 repayment threshold for 2026/27

For the 2026/27 tax year the Plan 2 threshold is £29,385 a year (£2,448.75 a month on the official monthly payroll figure). You repay 9% of income above that threshold, not 9% of your whole salary, and it is collected automatically through PAYE next to tax and National Insurance, or through Self Assessment if you file one.

Worked example: on £35,000 you repay 9% of £5,615 (the income above £29,385). That is about £505.35 a year, or roughly £42 a month.

The monthly threshold matters on its own. Employers apply the monthly figure to each payslip, so a one-off spike (a bonus month, overtime, a final payday with holiday pay) triggers a deduction even if your income for the whole year ends up below £29,385. GOV.UK confirms you can ask for a refund after the tax year ends if your annual income was under the annual threshold. In quieter months below £2,448.75, deductions simply stop; there is nothing to arrange.

These figures come from the calculator's verified repayment rules for 2026/27, checked as of 27 August 2026. The threshold runs on tax years (6 April to 5 April); interest runs on academic years, a separate timetable covered next.

How Plan 2 interest works

Plan 2 is the only undergraduate plan with a variable, income-based interest rate. Rates are set each 1 September from the previous March's RPI and depend on where you are in the loan's life:

While studying, and until the 6 April after you finish or leave, you are charged RPI plus 3%: 6.2% on the verified snapshot.
After that, the rate slides with income. At £29,385 or less you are charged RPI only (3.2% now). At £52,885 or more you are charged RPI plus 3% (6.2% now). Between the two, the addition scales in proportion to your income.

From 1 September 2026 the RPI base moves to 4.1%, but the government has capped Plan 2 interest at 6% for that academic year, without the cap the top rate would be 7.1%. The cap follows the academic year (1 September to 31 August), not the tax year, and the rates charged before 1 September 2026 are unaffected by it.

Interest accrues even in months you pay nothing, which is why a balance can grow while money leaves your payslip. It changes your total cost and how long you repay, but never the size of the monthly deduction, which depends only on income. The full mechanics, including how the sliding scale is applied, are in how student loan interest works.

The 30-year write-off

Whatever remains of a Plan 2 loan is cancelled 30 years after the April you were first due to repay, the April after finishing or leaving your course, not graduation day. Cancellation is written into the loan terms: there is no application, charge or penalty.

Because of the write-off, many Plan 2 borrowers never repay the full balance. A statement showing a large outstanding amount despite years of deductions is normal, and it is why the balance alone says little about what the loan will actually cost you. What matters is whether your earnings path clears the loan before the 30 years are up. The exact clock rules, and the cases where loans are cancelled earlier, are in when is a student loan written off.

Wales vs England on Plan 2

The repayment terms are identical: same threshold, same 9% rate, same interest rules, same 30-year write-off. The differences sit around the edges:

Wales still uses Plan 2 for new students. England moved starters to Plan 5 from 1 August 2023; Welsh-funded students who started after that date remain on Plan 2, with its higher threshold and shorter 30-year term.
Welsh partial cancellation. Student Finance Wales may cancel up to £1,500 from one Maintenance Loan when the first repayment is made, a Welsh scheme separate from the end-of-term write-off, described on GOV.UK's write-off page.

A Welsh graduate and an English 2012–2023 graduate on the same salary see identical deductions; the Welsh cohort's advantage over England's current system is really a Plan 2 vs Plan 5 question, compared directly in Plan 2 vs Plan 5.

Should you overpay a Plan 2 loan?

Only if you are on track to repay in full before the 30-year write-off. Extra payments cannot be refunded, so money sent at a balance that was heading for cancellation is spent, not saved, GOV.UK's own guidance warns you may not benefit. High earners with modest balances can genuinely save interest; most others reach the write-off regardless.

The deciding test, worked through step by step, is in should you overpay your student loan. To try it on your own figures, open the calculator's overpayment tool. It models your outcome with and without extra payments and says plainly when overpaying would not change the write-off.

Plan 2 questions, answered

Do I repay anything if I earn under £29,385?

Not on an annual basis, but PAYE tests each payslip against the monthly threshold, so a bonus or overtime month above £2,448.75 triggers a deduction. If your total for the year stays under £29,385, you can ask for that money back after the tax year ends.

I have Plan 1 and Plan 2 loans. What do I pay?

One combined deduction: 9% of income over the lower (Plan 1) threshold. Your repayment is then split between the two loans using a cap set by the gap between the thresholds, as set out on GOV.UK's repayment guidance.

Does a higher interest rate raise my monthly payment?

No. The deduction is always 9% of income above the threshold, whatever rate is being charged. Interest changes how long the deductions continue and whether you clear the balance before write-off, not the payslip amount.

Does a Plan 2 loan affect my credit score?

No. GOV.UK states that student loans do not appear on credit reports and do not affect your credit score, though lenders may consider the repayments during affordability checks for other borrowing, such as a mortgage.

When does the student rate stop applying?

You are charged RPI plus 3% from your first loan payment until the 6 April after you finish or leave your course (or, for part-time courses longer than four years, the 6 April four years after it started). From then on the income-based sliding scale applies.

Calculator limitations

Projections hold the verified snapshot (checked 27 August 2026) constant: thresholds and RPI do not move year to year unless you change the advanced assumptions yourself. The Plan 2 write-off date is estimated from the graduation year you enter, using the 30-year rule.

Outcomes are illustrative estimates, not personalised financial advice.

Official sources

Figures on this page follow the calculator's verified rules, last checked 27 August 2026. Useful official pages:

Ready to see figures for your salary and balance? Open the student loan calculator with Plan 2 selected, then replace the example values with your own.

Related briefings

This is general information, not financial advice. Check GOV.UK for the official rules that apply to your circumstances.