If you took out an undergraduate loan for a university course in England or Wales between September 2012 and July 2023, you are on a Plan 2 student loan. In the 2026/27 tax year, the statutory repayment threshold is £29,385 per year (£2,448.75 per month). You repay exactly 9% of your gross earnings above this threshold, deducted automatically through PAYE. Here is the complete breakdown of how Plan 2 works, exact worked repayment calculations, interest rate caps, and the 30-year statutory cancellation rules.
- Eligibility: English and Welsh undergraduate students who started courses between 1 September 2012 and 31 July 2023.
- Statutory Threshold: £29,385/year (£2,448.75/month, £565.09/week). [Source: GOV.UK]
- Repayment Rate: 9% of gross earnings above the threshold, collected automatically via PAYE.
- Statutory Write-Off: 30 years after the April following graduation or course exit. Unpaid balance completely wiped.
- Interest Rates: Tiered from RPI (4.1%) up to RPI + 3% (7.1%), currently restricted by the government maximum interest rate cap at 6.0%.
Who is on a Plan 2 Student Loan?
Your student loan repayment plan is determined by where your student finance funding body was based and the academic year you started higher education. You are on Plan 2 if:
- You applied for student finance through Student Finance England and began your undergraduate course between 1 September 2012 and 31 July 2023.
- You applied through Student Finance Wales and began your undergraduate course between 1 September 2012 and 31 July 2023.
- You took out an Advanced Learner Loan or Teacher Training bursary loan between 1 August 2013 and 31 July 2023.
| Repayment Plan | Jurisdiction & Start Dates | 2026/27 Threshold | Repayment Rate | Write-Off Period |
|---|---|---|---|---|
| Plan 1 | Pre-2012 England/Wales; all Northern Ireland | £26,900 | 9% | 25 years (or age 65) |
| Plan 2 | 2012–2023 England & Wales | £29,385 | 9% | 30 years |
| Plan 4 | Scotland (all years) | £33,795 | 9% | 30 years (or age 65) |
| Plan 5 | Aug 2023 onwards (England) | £25,000 | 9% | 40 years |
| Postgraduate | Master’s & Doctoral (England/Wales) | £21,000 | 6% | 30 years |
Statutory Threshold & Repayment Formula (2026/27)
Unlike commercial bank loans, your monthly Plan 2 repayments are completely divorced from your outstanding total balance. You only pay back an amount based on what you earn.
The 2026/27 threshold of £29,385 breaks down across standard payroll cycles:
- Annual Threshold: £29,385.00
- Monthly Threshold: £2,448.75 (£29,385 ÷ 12)
- Weekly Threshold: £565.09 (£29,385 ÷ 52)
The repayment formula applied by HMRC Real Time Information (RTI) is:
If you earn £29,385 or less across the year, your repayment is £0.00. If you earn £35,000, your repayment is 9% of the £5,615 difference = £505.35 per year (£42.11 per month).
Visual Repayment Breakdown: £40,000 Salary Example
To visualize how statutory deductions scale on a typical mid-career salary, the bar chart below breaks down a £40,000 gross salary under 2026/27 England & Wales tax rules:
Worked Examples Across Salary Bands (2026/27)
All figures below are calculated using the 2026/27 statutory parameters and verified against our calculation engine (assuming standard 1257L tax code, England/Wales rates):
| Gross Salary | Income Over Threshold | Plan 2 Annual | Plan 2 Monthly | Effective Plan 2 Rate | Net Take-Home Pay |
|---|---|---|---|---|---|
| £25,000 | £0.00 | £0.00 | £0.00 | 0.00% | £21,520.40 |
| £30,000 | £615.00 | £55.35 | £4.61 | 0.18% | £25,064.25 |
| £35,000 | £5,615.00 | £505.35 | £42.11 | 1.44% | £28,214.25 |
| £40,000 | £10,615.00 | £955.35 | £79.61 | 2.39% | £31,364.25 |
| £50,000 | £20,615.00 | £1,855.35 | £154.61 | 3.71% | £37,664.25 |
| £60,000 | £30,615.00 | £2,755.35 | £229.61 | 4.59% | £41,748.53 |
*Net take-home includes 2026/27 Income Tax (standard personal allowance £12,570), Class 1 employee National Insurance (8% / 2%), and Plan 2 student loan repayment. Does not deduct pension contributions or other voluntary salary sacrifice.
Plan 2 Interest Rates & the Statutory Cap
While interest accumulates on your student loan balance, it has zero effect on your monthly repayments. Your repayments remain strictly 9% of income above £29,385 regardless of whether interest is 1% or 10%.
Plan 2 interest rates are determined each September based on the Retail Price Index (RPI) from the preceding March:
- While studying: RPI + 3%.
- Earning £29,385 or less: RPI only.
- Earning between £29,385 and £52,885: RPI + a graduated rate between 0% and 3%, rising proportionally with income.
- Earning over £52,885: RPI + 3%.
However, to protect borrowers during inflationary spikes, the Department for Education applies a Prevailing Market Rate (PMR) cap. When market interest rates on comparable commercial loans are lower than the statutory RPI formula, the government caps the Plan 2 rate at the lower figure (currently capped at 6.0%).
The 30-Year Cancellation Rule & Why Overpaying Rarely Makes Sense
Plan 2 student loans are cancelled 30 years after the April following course completion. For example, if you finished university in June 2016, you entered statutory repayment in April 2017, and any outstanding balance will be completely written off in April 2047.
Because the government estimates that the majority of Plan 2 borrowers will never clear their total balance and accumulated interest within 30 years, Martin Lewis and leading financial analysts characterize Plan 2 as an income-contingent graduate tax. Making voluntary early repayments simply spends your own money to pay off debt that would otherwise be forgiven by the state.
Only graduates who expect sustained top-decile earnings (typically over £70,000–£80,000 consistently early in their careers) are projected to repay the debt before write-off. For everyone else, overpaying provides zero financial benefit.
Salary Sacrifice & Student Loan Savings
Because student loan repayments under PAYE are calculated on your gross taxable salary, enrolling in employer salary sacrifice arrangements directly reduces your student loan deductions:
- Pension Salary Sacrifice: Sacrificing £3,000 into your pension reduces your gross pay by £3,000, saving you £270.00 in student loan repayments (9% of £3,000) alongside £600 in Income Tax and £240 in NI.
- Cycle to Work & EV Schemes: Any pre-tax deduction lowers your assessable pay above £29,385, keeping an extra 9% of that sacrificed portion in your overall financial package.
Related Guides & Calculators
Explore our free, statutory-verified UK payroll and tax calculators to check your exact take-home pay and statutory deductions:
- Student Loan Repayment Calculator — Compare repayments across Plan 1, Plan 2, Plan 4, Plan 5, and Postgraduate loans.
- When Is Your Student Loan Written Off? — Exact write-off rules and timelines for every UK plan.
- Take-Home Pay Calculator (2026/27) — Work out your full net pay after tax, NI, pension, and student loan deductions.
- Salary Sacrifice Calculator — See how much tax, NI, and student loan you save by sacrificing salary.
Frequently Asked Questions: Plan 2 Student Loan (2026/27)
What is the Plan 2 student loan threshold for 2026/27?
For the 2026/27 tax year, the Plan 2 student loan repayment threshold is £29,385 per year, which equates to £2,448.75 per month or £565.09 per week. You only make repayments if your gross earnings exceed this amount.
How much do I repay on a Plan 2 student loan?
You repay exactly 9% of your gross earnings above the £29,385 annual threshold (£2,448.75 monthly). If your earnings fall below this threshold in any pay period, no deduction is taken. Deductions are taken automatically from your salary via PAYE.
When is a Plan 2 student loan written off?
Plan 2 loans are cancelled and written off 30 years after the April following the date you graduated or left your course. Any outstanding balance, including accumulated interest, is completely wiped at no cost to you.
What is the difference between Plan 1 and Plan 2 student loans?
Plan 1 applies to English and Welsh students who started before 1 September 2012 (and Northern Irish students), with a lower 2026/27 threshold of £26,900 and a 25-year write-off. Plan 2 applies to English and Welsh students starting between 1 September 2012 and 31 July 2023, with a higher threshold of £29,385 and a 30-year write-off.
How much student loan do I pay on a £35,000 salary under Plan 2?
On a £35,000 gross salary in 2026/27, your earnings above the £29,385 threshold are £5,615. Repaying 9% of £5,615 gives an annual repayment of £505.35, which works out to £42.11 per month.
How much student loan do I pay on a £40,000 salary under Plan 2?
On a £40,000 gross salary in 2026/27, your earnings above the £29,385 threshold are £10,615. Repaying 9% of £10,615 gives an annual repayment of £955.35, which is £79.61 per month. After tax (£5,486.00), NI (£2,194.40), and loan deductions (£955.35), your net take-home pay is £31,364.25 per year (£2,613.69 monthly).
What interest rate is charged on Plan 2 student loans in 2026/27?
Plan 2 interest is tiered based on income: if you earn £29,385 or less, interest is charged at RPI (4.1%); between £29,385 and £52,885, interest scales gradually up to RPI + 3% (7.1%); and over £52,885, the full RPI + 3% applies. However, interest is capped by the Department for Education’s Prevailing Market Rate cap, currently limiting maximum interest to 6.0%.
Does having a Plan 2 student loan affect my credit score or mortgage?
Student loans do not appear on your commercial credit file and do not impact your credit score. However, mortgage lenders assess student loan deductions when evaluating your monthly net income and affordability, which can slightly reduce your maximum borrowing capacity.
Is it worth paying off my Plan 2 student loan early?
For most graduates, voluntary early repayment is not recommended. Because your balance is cancelled after 30 years and repayments depend on what you earn rather than what you owe, paying extra only saves money if you are guaranteed to clear the full balance and interest before the 30-year mark.
Can I get a refund if my annual income drops below £29,385?
Yes. Because PAYE deductions are calculated on monthly pay periods, bonuses or overtime might trigger deductions even if your total earnings over the entire tax year (6 April to 5 April) are below £29,385. You can submit a refund claim through your online SLC account after the tax year ends.
Do Plan 2 repayments stop automatically when the balance is cleared?
HMRC notifies your employer to stop deductions once your loan is settled, but payroll updates typically take around 4 weeks. Any deductions taken after your debt reaches zero are fully refunded by SLC. To avoid overpaying, SLC recommends switching to Direct Debit during the final year of repayment.
How are Plan 2 repayments deducted if I am self-employed?
If you are self-employed or complete a Self Assessment tax return, HMRC calculates your 9% repayment based on your taxable profit above £29,385. The repayment is included in your annual balancing payment due by 31 January following the end of the tax year.