UK Student Loan Plans: How Much Are You Really Paying?
Plan 1, Plan 2, Plan 4, Plan 5, or Postgrad? Decoding the complex world of UK student loan deductions and how they impact your monthly payslip.
For millions of UK workers, a student loan deduction is a frustrating, unavoidable reality on every payslip. Unlike a regular bank loan, a UK student loan operates more like an additional "graduate tax." You only repay it when your income surpasses a specific threshold, and the debt is eventually wiped entirely after 30 or 40 years. However, the system is incredibly complex, with different "Plans" dictating vastly different repayment terms based on when and where you studied.
The Five Student Loan Plans Explained
Your repayment threshold—the amount you must earn before you start paying anything back—depends entirely on your Plan. Here are the rules for the 2025/26 tax year:
1. Plan 1 (Pre-2012 Students)
If you started your undergraduate course before September 1, 2012, you are on Plan 1. The repayment threshold for Plan 1 is £24,990 per year (or £2,082 per month). You pay 9% of everything you earn above this amount. Plan 1 generally has the lowest interest rates but the lowest repayment threshold, meaning you start paying it back sooner.
2. Plan 2 (Post-2012 Students)
The most common plan for recent graduates. If you started your course between September 1, 2012, and July 31, 2023, you are on Plan 2. The threshold is significantly higher at £27,295 per year (£2,274 per month). Like Plan 1, you pay 9% on earnings above this threshold. Plan 2 loans accrue interest at much higher rates, often tied to RPI plus up to 3%.
3. Plan 4 (Scottish Students)
If you applied to the Student Awards Agency Scotland (SAAS), you are on Plan 4. The threshold is £31,395 a year (£2,616 a month). You pay 9% on earnings above this. Plan 4 is currently the most generous plan in terms of the repayment threshold.
4. Plan 5 (The New Post-2023 Plan)
If you started your course on or after August 1, 2023, welcome to Plan 5. The government introduced this plan to ensure more students pay back their loans in full. The threshold is lower, set at £25,000 per year (£2,083 per month), and the loan isn't written off until 40 years have passed (unlike 30 years for Plan 2). You still pay 9% over the threshold.
5. Postgraduate Loans
If you took out a Master's or Doctoral loan, you face a different structure. The threshold is only £21,000 a year (£1,750 a month). You pay 6% of earnings above this. Crucially, postgraduate loan deductions happen concurrently with undergraduate loans. If you earn £30,000 on Plan 2 with a Master's, you will be paying 9% towards your undergrad AND 6% towards your postgrad simultaneously!
Are You Overpaying?
A shocking number of graduates are placed on the wrong plan by their employers. If your employer puts you on Plan 1 when you are actually Plan 2, you could be losing hundreds of pounds a year unnecessarily. Always check your payslip. If you need to see exactly how your plan affects your specific take-home pay down to the penny, use our UK Salary Calculator.