Step-by-step calculation
Step 1 — Confirm Plan 2
Plan 2 applies if you started higher education between September 2012 and August 2023 in England or Wales. After August 2023, new starters are on Plan 5.
Step 2 — Identify threshold-relevant income
- Start with annual gross salary
- Subtract salary-sacrifice pension contribution
- Subtract net-pay-arrangement pension contribution
- Don't subtract relief-at-source pension (taken from net pay)
Step 3 — Apply the formula
Annual deduction = max(0, threshold-relevant income − £29,385) × 9%
Step 4 — Per-period equivalents
PAYE uses per-period: - Monthly threshold: £29,385 / 12 = £2,448.75 - Weekly threshold: £29,385 / 52 = £565.10 - 4-weekly threshold: £29,385 / 13 = £2,260.38
Each pay period: earnings above period threshold × 9%, rounded DOWN to nearest pound.
Worked example 1 — Plan 2 on £30,000
Annual: - Above £29,385: £615 - 9% × £615 = £55/year
Monthly: - Gross: £2,500 - Period threshold: £2,448.75 - Above: £51.25 - 9% × £51.25 = £4.61 → rounds DOWN to £4/month - Annualised: £48 (small rounding difference)
For Plan 2 borrowers earning just above £29,385, the deduction is modest — often under £10/month.
Worked example 2 — Plan 2 on £40,000
Annual: - Above £29,385: £10,615 - 9% × £10,615 = £955/year
Monthly: about £79.
Worked example 3 — Plan 2 on £55,000
Annual: - Above £29,385: £25,615 - 9% × £25,615 = £2,305/year
Monthly: £192. Combined with Income Tax + NI on £55k, total deductions approach 28%.
Worked example 4 — Plan 2 + PGL on £50,000
Plan 2: - Above £29,385: £20,615 × 9% = £1,855/year
PGL: - Above £21,000: £29,000 × 6% = £1,740/year
Combined annual: £3,595 (about 7.2% of gross — meaningful)
Combined monthly: £300. For postgraduate-qualified Plan 2 borrowers at this salary, student loan is the third-largest deduction after Income Tax and NI.
Worked example 5 — Plan 2 with salary sacrifice eliminating deduction
£31,000 base salary, considering 6% salary sacrifice:
Without sacrifice: - Above £29,385: £1,615 × 9% = £145/year
With 6% sacrifice (£1,860): - Threshold-relevant income: £29,140 - Below £29,385: £0 student loan
The £1,860 sacrifice: - Eliminates £145 of student loan - Saves Income Tax + NI on sacrificed amount (~£520 at basic rate) - Puts £1,860 in pension
Total saving on take-home: ~£665. Plus £1,860 in pension. Net cost: ~£1,195 of would-have-been take-home → £1,860 pension contribution.
For Plan 2 borrowers between £29,385 and £33,000, this is the highest-value tax move available.
Bonus / variable pay
PAYE per-period means bonus months produce a spike:
Example: £42,000 base on Plan 2 + £4,000 bonus in November.
Normal month: - Gross £3,500, period threshold £2,448.75 - Above: £1,051.25 × 9% = £94/month
November bonus month: - Gross £3,500 + £4,000 = £7,500 - Above period threshold: £5,051.25 × 9% = £454
That single month's deduction is ~£360 higher than steady state. No end-of-year refund — PAYE per-period is final.
Plan 2 vs Plan 5 — what changed
If you started in September 2023 onwards in E&W, you're on Plan 5, not Plan 2: - Plan 5 threshold: £25,000 (£4,385 lower) - Plan 5 term: 40 years (10 years longer) - Plan 5 interest: RPI only (vs Plan 2's RPI + sliding margin)
When Plan 2 writes off
30 years from first becoming repayable (the April after you finished your course).
Example: graduated 2018 → first repayable April 2019 → write-off April 2049.
After write-off, the balance is forgiven with no credit impact, no tax event, no further obligation.
Plan 2 interest mechanics
- Base: RPI (Retail Price Index)
- Studying: RPI + 3%
- Repayment: starts at RPI (at threshold), slides up to RPI + 3% (well above threshold)
The interest is added to your balance daily but doesn't change your 9% deduction. For most Plan 2 borrowers who won't fully repay, the interest is academic — it just adds to the amount written off at year 30.
Voluntary repayment decisions
For most Plan 2 borrowers, voluntary lump-sum repayment doesn't generate value: - 30-year write-off means many won't fully repay - "Interest avoided" calculation is misleading (interest goes to writeoff) - Money invested elsewhere usually returns more
Exceptions where voluntary makes sense: - You're a high earner projecting full repayment (typically £60k+ stable for life) - You're near the 30-year mark with small balance - You're moving abroad and want to clear UK debt
Self-employed Plan 2
Self-employment income is reported via Self Assessment annually, not per-period PAYE. Rate and threshold are the same; the mechanism is annual reconciliation. Mixed PAYE + self-employed: PAYE deducts on employment income; SA reconciles total.
Practical checklist
- Confirm Plan 2 in SLC account
- Calculate threshold-relevant income (gross − salary-sacrifice pension)
- Apply formula: max(0, income − £29,385) × 9%
- Verify monthly payslip deduction
- Consider pension sacrifice if within ~£3,500 of threshold
- Use the student loan calculator for scenarios
In short
Plan 2 student loan repayment for 2026/27: 9% above £29,385, per pay period. The largest UK cohort. Most borrowers won't fully repay before 30-year write-off. Pension sacrifice optimisation is most valuable between £29,385 and £33,000. Use the student loan calculator for instant scenarios. For deeper Plan 2 coverage see Plan 2 thresholds and write-off →.