UK · Student loans

UK student loan plans explained, and whether you should overpay

Plans 1, 2, 4 and 5 and the Postgraduate Loan have different thresholds, interest rates and write-off dates. Here's how each works in 2026/27, and why overpaying is a bad idea for many graduates.

By Stuart Mathieson · 2 November 2026 · 7 min read

A UK student loan behaves much less like a loan than its name suggests. What you repay each month depends on what you earn, not on what you owe. Most graduates never clear it, and whatever's left is written off. Once that sinks in, a lot of the usual "pay off your debts" advice stops applying.

The catch is that there are five different plans with different rules, and which one you're on depends on where and when you studied. This guide covers the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027. I'm based in Scotland, so I've given Plan 4 - the Scottish plan - proper attention, which plenty of guides don't.

Which plan you're on

You don't choose your plan. It's set by the student finance body that lent you the money and when your course started.

Postgraduate master's and doctoral loans from England or Wales are on the separate Postgraduate Loan plan. Scottish postgraduate loans are part of Plan 4, and Northern Irish ones part of Plan 1.

It depends on where you studied from, not where you live now. If you're in Edinburgh repaying a loan from Student Finance England, you're on Plan 2 or 5. You can have more than one plan at once - an undergraduate Plan 2 and a Postgraduate Loan is a common pairing. Your online student loan account will tell you which plans you have.

How much you repay

You pay a percentage of your income above your plan's threshold. Below the threshold you pay nothing, however much you owe.

So someone on £40,000 with a Plan 4 loan repays 9% of £6,205, or about £47 a month. On Plan 5 the same salary costs £112.50 a month, because the threshold is so much lower.

If you have an undergraduate loan and a Postgraduate Loan, you repay both at once - 9% plus 6%, or 15% of the slice of income above both thresholds.

For employees it's taken through payroll, worked out each pay period. If you're self-employed, it's added to your Self Assessment bill.

Interest

Interest is added to your balance while you study and while you repay, and the rates are reviewed every year. At the time of writing, GOV.UK lists:

• Plans 1, 4 and 5: 4.1%
• Plan 2: 4.1% if you earn £29,385 or less, rising on a sliding scale to 6% at £52,885 or more
• Postgraduate Loan: 6%

For the 2026/27 academic year, from 1 September 2026, the government has capped Plan 2 interest at 6% rather than letting it reach the full RPI plus 3%. It hasn't said whether that cap continues beyond this year.

The Plan 2 threshold freeze

Thresholds usually rise with inflation every April. In the November 2025 Budget, the government announced that the Plan 2 threshold will be held at £29,385 for three years from April 2027, rising with inflation again from April 2030.

As pay rises over those years, more of your income lands above a fixed threshold, so Plan 2 repayments will creep up even if your loan balance doesn't change. The interest thresholds for Plan 2 are frozen too, which means more graduates will be charged the top rate.

When it's written off

This is the most important rule in the whole system, and it's where the plans differ most.

The Student Loans Company also cancels a loan if the borrower dies, and may be able to cancel it if you claim certain disability benefits.

Should you overpay?

GOV.UK says it plainly itself: you might not benefit from making extra repayments, because your loan may be written off at the end of the term. There's no penalty for overpaying, but you can't get the money back either.

The question to ask is: will I clear the loan before it's written off anyway? If not, every extra pound you pay is a pound you'd otherwise have kept. For a lot of graduates, the loan works more like a 9% tax on earnings above the threshold, for a fixed number of years, than a debt.

I ran some examples to show how differently it can go. These assume salaries and RPI both rise 3% a year, thresholds rise with RPI except during the Plan 2 freeze, and repayments start in April 2026. They're in future pounds, so they're illustrations, not predictions.

The first two people would be throwing money away by overpaying. The third would save a lot. The difference is income: a higher earner repays enough to clear the loan anyway, so it's worth paying off the interest faster. A modest earner on a Scottish Plan 4 loan, with a high threshold and low balances, may never repay much at all.

Some honest caveats:

• Nobody knows their salary 20 years from now. If you're early in your career, the answer can change.
• The rules change too - the Plan 2 threshold freeze is a recent example - and almost always against graduates.
• Overpaying does have one real benefit: once the loan is gone, your take-home pay goes up by the 9% you were repaying. If clearing it gives you peace of mind and you're likely to clear it anyway, that's a fair reason.
• If you have higher-interest debt, such as a credit card or overdraft, or no emergency savings, those almost always come first.

For decisions involving large sums, GOV.UK itself suggests getting professional financial guidance.

Run your own numbers

The student loan repayment calculator projects your repayments year by year, shows when the loan would be cleared or written off, and compares the total with and without overpayments. The take-home pay calculator shows what your repayments come to alongside tax and National Insurance on your payslip.

Written by Stuart Mathieson

I'm a freelance web developer based in Scotland, and I build and maintain every calculator on this site myself. I check the figures in these guides against HMRC, the IRS and the other official sources listed below, but I'm not a tax adviser - for decisions that matter, talk to one. More about me.