Student Loan Repayment 2026/27: Plans 1, 2 and 5 Fully Explained

Student Loan Repayment 2026/27: The Complete Guide

The UK student loan system is one of the most misunderstood financial arrangements in the country. Because student loans look like conventional loans, many graduates assume that repaying them quickly is the sensible move. In most cases, the opposite is true. Understanding which plan you are on — and how it actually works — can prevent thousands of pounds in unnecessary overpayments.

Which Plan Are You On?

If you are unsure, check the Student Loans Company (SLC) portal at gov.uk/repaying-your-student-loan.

2026/27 Repayment Thresholds and Rates

You repay 9% of everything you earn above the threshold, and nothing below it. Repayments are made through PAYE (automatically deducted) for employees, or Self Assessment for the self-employed.

How Repayment Is Calculated: Examples

Plan 2 graduate earning £38,000:

• (£38,000 − £28,470) × 9% = £9,530 × 9% = £857.70/year (£71.48/month)

Plan 5 graduate earning £32,000:

• (£32,000 − £25,000) × 9% = £7,000 × 9% = £630/year (£52.50/month)

Plan 1 graduate earning £50,000:

• (£50,000 − £26,065) × 9% = £23,935 × 9% = £2,154/year (£179.50/month)

Important: Repayments adjust automatically if your income changes — increasing with a pay rise and stopping if you fall below the threshold (parental leave, part-time work, unemployment).

Interest Rates 2026/27

Interest continues to accrue on your loan — the rate varies by plan:

Plan 1: Capped at the lower of RPI inflation or Bank of England base rate + 1%. Typically 4–5%.

Plan 2: During study: RPI + 3%. After graduation: RPI to RPI + 3%, scaling with income (from £29,305 to £52,725). This means high-earning Plan 2 graduates accumulate substantial interest, often faster than repayments reduce the balance.

Plan 5: RPI only — the most borrower-friendly interest calculation. Designed so that more graduates will repay their full balance (a policy shift from Plan 2).

The Critical Question: Will You Repay in Full?

The answer to this question determines almost everything about how you should think about your student loan.

For most Plan 2 graduates: The expected value calculation shows they will not repay the full balance within 30 years. At £27,295 threshold, a £50,000 loan balance, and an average salary of £35,000–£45,000, the cumulative repayments over 30 years fall short of the outstanding balance. The remainder is written off — meaning any overpayments simply reduce what would have been written off for free.

For Plan 1 graduates: The 25-year write-off and lower interest rate mean more graduates will clear their balance. Higher earners should model their projected repayments.

For Plan 5 graduates: The 40-year write-off and RPI-only interest create a very different dynamic. Many higher-income Plan 5 graduates will repay fully, making the loan more like a conventional obligation.

Should You Overpay Your Student Loan?

Financial Priority Order for Graduates

1. Emergency fund (3 months expenses)
2. Employer pension matching (instant 100% return)
3. High-interest debt (credit cards, overdrafts)
4. Mortgage deposit savings
5. Further pension contributions
6. Stocks and Shares ISA
7. Student loan overpayment (only for Plan 1/5 high earners)

Impact on Mortgage Applications

Student loan repayments appear in affordability assessments. Lenders treat them as monthly outgoings when calculating disposable income. Since they stop automatically if income falls, most lenders treat them as lower-risk than fixed debt — but they still reduce the amount you can borrow.

Always declare student loans honestly on mortgage applications.

Multiple Loans

Some graduates carry both an undergraduate loan (Plan 1, 2, or 5) and a postgraduate loan. Both are deducted via PAYE simultaneously:

• 9% above the undergraduate threshold
• 6% above £21,000 for the postgraduate loan

These are independent calculations — you could be repaying both simultaneously.

Frequently Asked Questions

Q: My employer is deducting student loan repayments but I graduated years ago — could this be an error? Check your balance and repayment status via the SLC portal. If your loan was fully repaid or written off, contact HMRC — overpayments through PAYE are refundable when a stop notice wasn't properly applied.

Q: What happens to my student loan if I move abroad? You must notify the SLC and set up an overseas repayment plan based on earnings in your destination country. The SLC pursues repayments internationally — ignoring the loan is not advisable.

Q: Does student loan debt affect my credit score? No. Student loans do not appear on UK credit files and do not affect your credit score. However, the monthly repayments reduce disposable income, which mortgage lenders factor into affordability.

Q: I finished studying mid-year — when do repayments start? Repayments begin in the April following your graduation (or leaving your course). HMRC notifies your employer when to start deductions.