How a Pay Rise Hits Your Plan 2 Student Loan in 2026/27
A pay rise can quietly add another 9% deduction if you are repaying a Plan 2 student loan above GBP 29,385. Here is how the maths stacks with income tax and NI in 2026/27.
If you are repaying a Plan 2 student loan, a pay rise comes with an extra passenger: a 9% deduction on the part of your income above the threshold. Stacked on top of income tax and National Insurance, it changes how much of your raise you actually take home in 2026/27.
The Plan 2 basics
Plan 2 loans apply to most students in England and Wales who started undergraduate courses from September 2012. The repayment threshold for 2026/27 is GBP 29,385. You repay 9% of everything you earn above it, collected automatically through PAYE.
So someone on GBP 35,000 repays 9% of GBP 5,615, which is GBP 505 a year, regardless of any pay rise.
How a raise stacks up
When your pay sits above both the GBP 12,570 Personal Allowance and the GBP 29,385 Plan 2 threshold, each extra pound faces three deductions:
- 20% income tax
- 8% employee National Insurance
- 9% student loan repayment
That is 37% in total, so you keep 63p of every additional pound. The student loan is the part many people forget when they celebrate a raise.
Worked example: GBP 34,000 rising to GBP 38,000
Consider a GBP 4,000 raise from GBP 34,000 to GBP 38,000, with both figures above the Plan 2 threshold and inside the basic-rate band.
- Income tax at 20%: GBP 800
- Employee National Insurance at 8%: GBP 320
- Student loan at 9%: GBP 360
- Net increase: about GBP 2,520 a year, or GBP 210 a month
The GBP 4,000 headline becomes GBP 2,520 in your pocket. The 63% keep rate is noticeably tighter than the 72% rate someone without a student loan would enjoy.
The deduction is not a tax forever
It helps to remember that the 9% reduces an actual debt and is written off after the plan term. Unlike income tax, it stops once the balance is cleared. A pay rise that increases repayments also clears the loan faster, which can save interest depending on your balance.
Other plans for comparison
Plan 2 is just one of several thresholds in 2026/27:
- Plan 1: GBP 26,900, 9%
- Plan 2: GBP 29,385, 9%
- Plan 4 (Scotland): GBP 33,795, 9%
- Plan 5: GBP 25,000, 9%
- Postgraduate loan: GBP 21,000, 6%
If you hold both an undergraduate and a postgraduate loan, the 6% postgraduate deduction stacks on top, so a higher earner can face 15% of student loan deductions combined.
Quick takeaways
- Plan 2 repayments start at GBP 29,385
- The rate is 9% of income above the threshold
- Combined marginal rate with tax and NI: 37%, keep rate 63%
- A raise always increases take-home, just by less than the headline
To model your exact take-home with a student loan included, use the CalcHub take-home pay calculator and confirm your plan and threshold on gov.uk.
Frequently asked questions
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