UK Student Loan Plan 2 Repayment Rules & Calculator 2026–27

1. What Is a Plan 2 Student Loan?

Plan 2 is the income-contingent repayment plan applying to eligible undergraduate loans for students who started qualifying courses in England or Wales from September 2012 and before the introduction of later repayment plans. This guide focuses on Plan 2 undergraduate student loans and the 2026–27 repayment rules. Plan 2 is an income-contingent system. Repayments depend on income rather than on the outstanding loan balance. The repayment rate is 9% of income above the applicable repayment threshold.

2. The 2026–27 Plan 2 Repayment Threshold

From 6 April 2026, the Plan 2 UK repayment threshold is £29,385 per year. For PAYE payroll purposes this corresponds to approximately: • £29,385 per year • £2,448 per month • £565 per week The repayment rate remains 9% of earnings above the applicable threshold. This is a significant change from the £28,470 threshold that applied during 2025–26 and the older £27,295 threshold used in previous years.

3. Is the £29,385 Plan 2 Threshold Frozen?

The government confirmed that the Plan 2 repayment threshold for 2026–27 is £29,385. The Autumn Budget 2025 also announced that the Plan 2 repayment threshold will be frozen at £29,385 for three years from April 2027. Therefore, the statement 'frozen until 2027' is incomplete and should be replaced with the more precise rule: the threshold is £29,385 for 2026–27, with a government-announced freeze at £29,385 for three years from April 2027.

4. How Plan 2 Repayments Are Calculated

The basic annual calculation is: Annual repayment = 9% × (income − £29,385) where income is above the repayment threshold. For PAYE workers, however, actual payroll deductions are not simply calculated from the annual salary and divided by 12. Employers use the applicable pay-period threshold and HMRC's student-loan deduction rules. The result is rounded down to the nearest whole pound for payroll deductions. Therefore, an annual estimate and actual monthly payslip deduction can differ slightly.

5. 2026–27 PAYE Repayment Examples

The following examples use the official 2026–27 Plan 2 thresholds. £30,000 annual salary: Monthly gross pay is approximately £2,500. Monthly threshold is approximately £2,448. The excess is approximately £52. The monthly Plan 2 deduction is approximately £23 after payroll calculation and rounding. £40,000 annual salary: Monthly gross pay is approximately £3,333. The official GOV.UK example gives an approximate Plan 2 repayment of £79 per month. £60,000 annual salary: Monthly gross pay is approximately £5,000. The excess over the monthly threshold is approximately £2,552. 9% produces approximately £229.68, so the payroll deduction is approximately £229 per month after rounding down. These are PAYE illustrations. Actual deductions can vary where pay varies between pay periods, bonuses are paid, or other student-loan-plan rules apply.

6. Why the Annual Repayment Formula Differs From PAYE

A simple annual calculation is useful for estimating liability, but PAYE deductions operate by pay period. For example, the annual formula for £30,000 income is: £30,000 − £29,385 = £615 £615 × 9% = £55.35 per year. That does not mean an employer necessarily deducts exactly £4.6125 every month. The employer applies the monthly threshold and rounds the resulting deduction according to HMRC payroll rules. This is why a calculator should clearly distinguish an annual estimate from an actual payslip deduction.

7. Plan 2 Interest While Studying

For full-time Plan 2 students, interest is normally charged at RPI plus 3% while studying and until 6 April after the borrower finishes or leaves the course. For part-time students, the applicable timing can differ. Interest at RPI plus 3% normally applies while studying and until the earlier of the April after leaving the course or the April four years after the course started, where the part-time rules apply. The interest rate can also be subject to a prevailing-market-rate cap.

8. Plan 2 Interest After Leaving or Completing the Course

After the relevant post-study date, Plan 2 uses a Variable Interest Rate based on the borrower's annual income. For the 2025–26 rate period, RPI is 3.2% and the maximum rate is 6.2%. For 2026–27, the applicable income thresholds are: • £29,385 or less: RPI only. • £29,386 to £52,884: RPI plus a variable additional percentage of up to 3%. • £52,885 or more: normally RPI plus 3%. The exact rate between the two thresholds increases progressively according to income rather than jumping immediately from RPI to RPI+3%.

9. How the Variable Plan 2 Interest Rate Is Calculated

For income between the lower and higher interest thresholds, the additional interest percentage is calculated on a sliding scale. For example, using the current £29,385 lower threshold and £52,885 higher threshold: 1. Subtract £29,385 from annual income. 2. Divide that result by £23,500, the difference between the two thresholds. 3. Multiply the result by 3 percentage points. 4. Add the resulting percentage to RPI. For example, at £40,000 income: £40,000 − £29,385 = £10,615. £10,615 ÷ £23,500 = approximately 0.451. 0.451 × 3 = approximately 1.35 percentage points. If RPI is 3.2%, the total interest rate is approximately 4.55% under this illustrative calculation, subject to the applicable official rate and cap.

10. When Does Plan 2 Repayment Liability Start?

For a full-time Plan 2 student, repayment normally becomes due from the April after the borrower finishes or leaves the course. This date is the Statutory Repayment Due Date (SRDD). For certain part-time students, repayment can begin from the earlier of the April after leaving the course or the April four years after the course started. The SRDD is important because the cancellation period is measured from it.

11. When Is a Plan 2 Loan Written Off?

A remaining Plan 2 loan balance is normally cancelled after 30 years from the borrower's Statutory Repayment Due Date. It is therefore not technically correct to say that every Plan 2 loan is written off exactly 30 years after graduation. The SRDD is normally the April after completion or withdrawal for a full-time borrower, while special timing rules can apply to part-time borrowers. Other cancellation circumstances can also apply under the student-loan terms and conditions.

12. What Happens If Income Falls Below the Threshold?

If income falls below the applicable repayment threshold, compulsory repayments normally stop for periods in which earnings do not exceed the threshold. If income later rises above the threshold, repayments resume. Interest does not automatically stop when repayments stop. Interest continues to be applied to the outstanding balance according to the applicable Plan 2 interest rules.

13. Does a Spouse's Income Affect Plan 2 Repayments?

No. Plan 2 repayments are based on the individual borrower's income rather than combined household income. A spouse or partner's salary does not become part of the borrower's Plan 2 repayment calculation simply because they are married or living together. This should not be confused with household-income tests used for other benefits, student support or financial products.

14. Self-Employed Plan 2 Borrowers

Plan 2 repayments are not limited to PAYE employees. Self-employed borrowers generally make student-loan repayments through Self Assessment using the applicable student-loan rules. A borrower with both employment and self-employment income may have different repayment calculations depending on how the income is reported and collected. A Plan 2 calculator should therefore not assume that every borrower is paid through PAYE.

15. Plan 2 Borrowers Living Overseas

Plan 2 repayment obligations continue when a borrower moves overseas. The Student Loans Company publishes country-specific overseas earnings thresholds and repayment amounts for each year. For 2026–27, these thresholds apply from April 2026 to March 2027 and can differ substantially from the UK £29,385 threshold. A borrower living overseas should therefore use the SLC threshold for the country where they normally live rather than automatically applying the UK threshold.

16. Voluntary Plan 2 Repayments

Borrowers can make additional voluntary repayments to the Student Loans Company at any time. Voluntary payments are separate from compulsory income-contingent repayments collected through PAYE or Self Assessment. Before making a large voluntary repayment, consider the expected lifetime repayments, interest rate, likelihood of reaching the 30-year cancellation point, cash-flow needs and alternative uses of the money.

17. Plan 2 and Credit Scores

UK student loans do not operate like ordinary commercial credit accounts and do not appear on standard UK credit reports in the same way as consumer loans. Student-loan repayments can nevertheless affect affordability calculations because a lender may take the monthly deduction into account when assessing disposable income. Therefore, the accurate explanation is that Plan 2 does not directly create a standard credit-file entry, but its repayment can affect a lender's affordability assessment.

18. 2026–27 Plan 2 Quick Reference

For 2026–27: • UK repayment threshold: £29,385. • Monthly PAYE threshold: approximately £2,448. • Weekly PAYE threshold: £565. • Repayment rate: 9%. • Lower interest threshold: £29,385. • Higher interest threshold: £52,885. • Interest: RPI to RPI+3% depending on circumstances, subject to applicable caps. • Cancellation period: 30 years from SRDD. The threshold used for 2025–26 was £28,470, so older articles using £27,295 or £28,470 should not be presented as the current 2026–27 rule.

Key Takeaways & Summary

• Plan 2 applies to students who started university in England/Wales between 2012 and July 2023.
• Repayments kick in at income above £27,295 per year (£2,274 per month).
• You pay 9% of your gross earnings above the £27,295 threshold.
• Interest ranges from RPI (under £27,295) up to RPI + 3% (over £49,130).
• Remaining balance is completely written off after 30 years.

Official References & Related UK Hubs

Frequently Asked Questions (6 Interlinked FAQs)