Student Loan Repayments in 2026: What You're Actually Paying and Whether to Overpay

If you've got a student loan, a quiet change taking effect this year could cost you more over time — even though the headline interest rate looks unremarkable. Here's what's actually happening to Plan 2 and Plan 5 loans, and how to work out whether you're one of the graduates who should consider overpaying.

The freeze that matters more than the rate

The Plan 2 repayment threshold — the income level above which you start repaying 9% of everything above it — rises to £29,385 for the 2026/27 tax year, up from £28,470. Sounds fine so far. The catch: the government has confirmed this threshold will now be frozen at £29,385 until April 2030, instead of rising with inflation as originally promised. Martin Lewis at MoneySavingExpert has flagged that this "fiscal drag" quietly increases how much graduates repay over the life of the loan, since wages typically rise faster than a frozen threshold.

Plan 2 interest is variable: 3.2% for those earning under the lower threshold, rising to 6.2% for the highest earners (above £52,885), with a straight-line taper in between. From 1 September 2026, a new 6% cap applies to Plans 2 and 3, which puts a ceiling on how high that top rate can go regardless of market interest rates.

Plan 5 (for most students who started courses from 2023 onwards) works differently: the repayment threshold is £25,000, and interest is capped at RPI inflation only — 3.2% for the year to August 2026 — with no extra margin added on top, making it structurally cheaper in percentage terms than Plan 2's upper band.

Should you overpay?

For most graduates, the honest answer from independent commentators is usually no — because student loans behave more like a graduate tax than a conventional debt: unpaid balances are wiped after 30–40 years depending on your plan, and many borrowers never clear the balance regardless of how much interest accrues. Overpaying only clearly helps if you're confident you'll repay the loan in full anyway (typically higher earners), since otherwise you're paying down debt that would have been written off.

Checklist: work out your position

• Confirm which plan you're on — check your student finance online account or your original loan paperwork; Plan 2, Plan 5, and Plan 1 (for older loans, threshold £26,900) all have different rules.
• Check your current salary against your threshold — you only repay 9% of income above the threshold, not on the whole salary.
• Estimate your total career earnings trajectory — if you're likely to be a high earner for most of your working life, you're more likely to fully repay, which changes the overpayment maths.
• Don't assume "smaller balance is always better" — for many graduates, paying it off faster just means paying HMRC money that would otherwise have been forgiven.
• Get a second opinion before making lump-sum overpayments — these can't usually be undone once paid.

How other countries compare

The US federal student loan system links repayment to income through various income-driven repayment plans with forgiveness after 20–25 years, a structure similar in spirit to the UK's write-off approach. Australia's HECS-HELP system also ties repayments to income and indexes the debt to inflation, without accruing traditional interest — arguably a gentler model than either the UK's Plan 2 or Plan 5.

Key Numbers

• £29,385 — Plan 2 repayment threshold, frozen to April 2030
• £25,000 — Plan 5 repayment threshold
• 3.2%–6.2% — Plan 2 interest range, capped at 6% from September 2026

Sources

• Student loans: Interest rates and repayment thresholds FAQs — House of Commons Library
• Beware, Plan 2 Student Loan holders — MoneySavingExpert
• Student Loan repayment guide 2026 — Save the Student

Educational content only — not financial advice.