If you graduated after 2012, you likely have a Plan 2 student loan. Understanding how these loans work is crucial for making informed financial decisions. Unlike traditional loans, Plan 2 has unique repayment rules that make early repayment often unwise.
How Plan 2 Repayments Work
You only repay 9% of your income above the threshold (£29,385 in 2026-27). Your salary determines your monthly payment, not the amount you owe. The loan is automatically written off after 30 years.
- Repay 9% of income above £29,385 threshold
- Payments increase with salary
- Loan written off after 30 years
- Interest charged at RPI + up to 3%
Should You Pay Early?
For most graduates, early repayment doesn't make mathematical sense. Since the loan is written off after 30 years and repayments are income-contingent, paying more simply reduces what would have been forgiven. Only consider early repayment if you're genuinely wealth and the monthly payments strain your budget unnecessarily.
Does paying off your student loan early save money?
Not necessarily. With the 30-year write-off and income-contingent repayments, many graduates never repay the full amount anyway. Early payments may just reduce forgiven debt.
What happens if you don't earn enough to repay?
If your income drops below the threshold, your repayments pause. The loan is eventually written off after 30 years regardless of whether you paid it off.
Strategy: Focus on Other Debts First
If you have high-interest debt like credit cards or payday loans, prioritize those over your student loan. The interest rates on consumer debt typically far exceed student loan rates, and that debt isn't written off after 30 years.
- student loan
- plan 2
- repayment
- university
- UK