What is the difference between Plan 2 and Plan 5 student loan repayments?

Full answer

Student Loan Plan 2 and Plan 5 are two of the several UK student loan repayment plans, and confusion between them is common since both apply to broadly the same type of borrower (English and Welsh undergraduates) but on very different terms, following reforms introduced for new starters from August 2023. **Who is on which plan** Plan 2 applies to students from England and Wales who started their undergraduate course between 1 September 2012 and 31 July 2023. Plan 5 applies to new students starting from 1 August 2023 onwards -- so which plan you're on is determined by when you started your course, not simply when you graduated or how much you borrowed. **Repayment threshold -- a key difference** For 2026/27, the Plan 2 repayment threshold is £29,385 a year, meaning you only start repaying once your income exceeds this. The Plan 5 threshold is £25,000 a year and is frozen at this level rather than rising with inflation each year -- this lower, frozen threshold means Plan 5 borrowers start repaying at a lower income and, over time as wages rise with inflation, an increasing share of their income falls above the threshold and becomes subject to repayment. **Repayment rate is the same** Both Plan 2 and Plan 5 charge the same 9% repayment rate on income above the relevant threshold -- so at a given income level above both thresholds, the actual monthly repayment amount is calculated identically; the difference in total repayments over a lifetime comes mainly from the different thresholds and write-off periods, not the in-year repayment rate itself. **Interest rates** Both plans generally charge interest linked to RPI (the Retail Prices Index), with Plan 2 historically allowing interest to rise on a sliding scale up to RPI+3% for higher earners while studying and after, whereas Plan 5 interest is generally set at RPI only, without the same higher additional margin for higher earners -- meaning Plan 5 borrowers on higher incomes may actually face a lower interest rate than an equivalent Plan 2 borrower would have, even though they start repaying at a lower threshold. **Write-off period -- 30 years vs 40 years** Any remaining balance on a Plan 2 loan is written off 30 years after the April you were first due to repay. Plan 5 loans are written off after 40 years instead -- a full decade longer. Combined with the lower, frozen repayment threshold, this means many Plan 5 borrowers will end up repaying their loan in full (rather than having a balance written off), whereas many Plan 2 borrowers on more moderate incomes were expected to still have a balance outstanding at the 30-year write-off point. **Overall effect -- who pays more in total** Because of the lower frozen threshold and much longer write-off period, Plan 5 is generally expected to result in a higher proportion of borrowers repaying their loan in full, and higher total repayments over a working lifetime for many graduates, compared with an equivalent Plan 2 borrower, even though the headline 9% repayment rate is identical between the two plans. **Checking which plan you're on** You can check which plan applies to your loan through your online Student Loans Company account, or by checking your original loan paperwork for your course start date -- this is important because payroll systems use your plan type to apply the correct threshold when calculating deductions through PAYE. **Practical tip** If you're unsure which plan applies, or you're juggling multiple loan types (for example, an undergraduate Plan 2 or 5 loan alongside a Postgraduate Loan), check your Student Loans Company account directly, since employers rely on the plan type you report to them (via your P45/starter checklist or HMRC instruction) to apply the correct threshold and rate.

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