Student loans are one of those topics that manage to be simultaneously straightforward and deeply confusing. The basic mechanism is simple: you borrow money for university, and once you earn above a certain threshold, 9% of your income above that threshold is deducted from your payslip each month. But which plan are you on? What is the threshold? When does it get written off? And is it ever worth paying it off early? These are the questions that trip people up.
In 2026, there are four active student loan plan types in England and Wales, plus a separate system in Scotland. Here is a complete comparison to help you understand exactly what you are repaying and how it affects your finances.
The Four Plan Types at a Glance
Plan 1 applies to English and Welsh students who started university before September 2012, and to all Northern Irish students. The repayment threshold for 2026/27 is £24,990 per year (£2,082 per month). You repay 9% of everything you earn above this threshold. Interest is charged at whichever is lower: the rate of inflation (RPI) or the Bank of England base rate plus 1%. The loan is written off when you turn 65, or 25 years after the April following graduation, depending on when you took it out.
Plan 2 applies to English and Welsh students who started university between September 2012 and July 2023. The repayment threshold for 2026/27 is £27,295 per year (£2,274 per month). The repayment rate is the same 9%, but the interest model is different: it ranges from RPI only (if you earn below the threshold) to RPI plus 3% (if you earn over £49,130). This means higher earners accumulate interest faster. Plan 2 loans are written off 30 years after the April following graduation.
Plan 4 applies to Scottish students. The threshold for 2026/27 is £31,395 per year (£2,616 per month) — the highest of any plan type. The repayment rate is 9%, and the loan is written off 30 years after the April following graduation, or when you turn 65.
Plan 5 applies to English students who started university from September 2023 onwards. The threshold is £25,000 per year (£2,083 per month), and repayments are 9% of earnings above this. Interest is charged at RPI only (no additional percentage). Crucially, Plan 5 loans are written off after 40 years — a significant increase from Plan 2's 30 years. This longer repayment window means more graduates will end up repaying in full, which was the government's intention.
How Repayments Actually Work on Your Payslip
Student loan repayments are collected through the PAYE system, just like income tax and National Insurance. Your employer deducts them automatically based on your plan type and earnings. The deduction appears as a separate line on your payslip, usually labelled SL1, SL2, SL4, or SL5 depending on your plan.
To see exactly how student loan repayments interact with your other deductions, use our student loan calculator. It shows you the monthly repayment amount alongside your income tax and NI, so you can see the total impact on your take-home pay.
If you are on Plan 2 and also took a postgraduate loan, you may have two separate deductions: 9% for your undergraduate loan and 6% for the postgraduate loan. These are calculated independently, so the combined deduction is 15% of earnings above the respective thresholds. That is a significant chunk of your pay, particularly if you are in the £30,000 to £40,000 salary range.
Will You Actually Repay the Full Amount?
This is the crucial question, and the answer depends on your earnings trajectory. For Plan 2 graduates, the Institute for Fiscal Studies estimates that only around 25% will repay their loans in full before the 30-year write-off. For the majority, student loan repayments function more like a graduate tax than a traditional debt.
Plan 5 changes this dynamic. With a 40-year repayment window and lower interest (RPI only), a larger proportion of graduates are expected to repay in full. The Office for Budget Responsibility estimates that approximately 52% of Plan 5 borrowers will clear their loans before the write-off date.
The practical implication: if you are on Plan 2 and earning a moderate salary, voluntarily overpaying your student loan is usually poor financial advice. You are likely to have a large portion written off, and any overpayments cannot be reclaimed. On the other hand, if you are a high earner on Plan 1 or Plan 5, overpaying could save you money on interest in the long run.
Common Mistakes and Overpayments
One of the most frustrating aspects of the student loan system is overpayment during the final months of repayment. Because there is a delay between your employer making deductions and the Student Loans Company updating your balance, many people end up overpaying after their loan is technically cleared. The SLC will refund overpayments, but it can take several months.
If you think you are close to paying off your loan, contact the SLC to request a final balance and switch to direct debit for the last few payments. This gives you more control and avoids overpaying through PAYE.
Another common issue is being on the wrong plan type. If your payslip shows SL2 but you are actually on Plan 1, you will be paying based on the wrong threshold. Check your plan type with the SLC and inform your employer if there is a discrepancy.
Student Loans and Other Financial Decisions
Your student loan repayment affects several other financial calculations. When applying for a mortgage, most lenders factor in student loan repayments as a committed expenditure, reducing the amount they will lend you. Use our mortgage calculator alongside the student loan calculator to understand how both interact with your borrowing capacity.
Student loan repayments also interact with your overall tax position. While they are not technically a tax, they feel like one — especially when combined with income tax and NI. On a £35,000 salary with a Plan 2 loan, your combined effective deduction rate (tax, NI, and student loan) on earnings above the threshold can exceed 38%. Our salary calculator shows you the full picture including student loan repayments.
The Bottom Line
Student loans are a significant but manageable part of your financial life. The key is understanding which plan you are on, what the threshold is, and whether it makes sense to overpay or simply let the system run its course. For most Plan 2 graduates, the answer is to make the minimum repayments and focus your spare cash on other priorities like pensions, emergency savings, or reducing higher-interest debt.
Check your current balance and plan type on the GOV.UK student loan repayment page, and model the impact on your pay using our student loan repayment calculator.