Sunita Somvanshi
If you borrowed money for university, the number that matters most isn’t how much you borrowed. It’s how much you earn when repayment starts. That changes everything about what you’ll actually pay back.
The UK government offers different student loan repayment plans. They have different income thresholds, different interest rates, and different rules about how long you repay. Most people are on Plan 1 or Plan 2, depending on where and when they studied. Plan 2 applies to most borrowers who started university after 2012. Plan 4 is the main option for Scottish borrowers through Student Awards Agency for Scotland (SAAS).
Here’s what matters right now, in 2026.
If you’re on Plan 2, your repayment threshold is £29,385 per year. That means if you earn less than that, you pay nothing. If you earn £30,000, you repay 9 percent of the £615 above the threshold—that’s £55.35 per year, or roughly £4.61 per month. If you earn £40,000, you repay 9 percent of £10,615—that’s about £80 per month.
The interest rate is another piece. Plan 2 normally charges interest at the inflation rate plus up to 3 percent. But for the 2026-27 year specifically, the government set a cap at 6 percent. That cap runs from September 1, 2026, to August 31, 2027.
Plan 1 works differently. The threshold for 2026-27 is £26,900 per year. The interest rate calculation is different too. Plan 1 graduates repay at 9 percent of income above the threshold, but with lower interest charges. The trade-off is you repay a slightly higher portion of what you earn, but the interest doesn’t stack up as fast.
Why does this matter? Because a graduate earning £30,000 might prefer Plan 1 if they’re eligible—lower interest means less total repayment over time. But if you’re earning £50,000, the calculation shifts. Plan 1 charges you 9 percent of a higher income amount, while Plan 2’s lower threshold (£29,385 versus £26,900) means you pay on less of your earnings.
Here’s what most people don’t know. Loan repayment depends less on the size of your loan and more on three things: your repayment plan, your income threshold, and your current income. A graduate on Plan 2 who borrowed £60,000 but earns £25,000 pays nothing. A graduate who borrowed £20,000 but earns £45,000 pays more.
Interest is where people get surprised. If you’re earning well above the threshold, interest can stack up. Someone on Plan 2 earning £60,000 will pay approximately £2,755 per year in repayment. If interest is high and they’re not paying enough to cover the interest charge, their balance actually grows. It’s rare, but it happens.
Plan 2 loan write-off and Plan 1 loan write-off provisions vary according to the specific loan terms and date of the loan. You should check your individual loan terms for the exact write-off timeline that applies to you.
Before you worry about your student loan balance, find out three things: which plan you’re on, your current threshold, and check whether your employer deducts repayment automatically. Most do. If you’re self-employed, you report repayment through self-assessment. If you’ve moved abroad, different rules apply. There are overseas earnings thresholds and fixed monthly repayment arrangements for Plan 2 borrowers living outside the UK.
The honest truth is the system is complex because it’s trying to balance fairness with flexibility. Income-based repayment means low earners pay less. But it also means high earners pay more, and interest calculations become difficult to predict. The government publishes detailed guidance for each plan. Reading it takes time, but understanding which plan you’re on and what your threshold is matters more than any other number.
