The Plan 2 student loan repayment threshold has been frozen at £29,385 since April 2026, and it will stay there for three tax years running to April 2030 instead of rising with inflation as it normally would. The change was confirmed at the Autumn Budget in November 2025, and five months into the new tax year, graduates are starting to notice it on their payslips — not because the 9% repayment rate has moved, but because the point at which that rate kicks in hasn't.
That distinction matters more than it sounds.
A frozen threshold while wages keep rising is the same mechanism the Treasury has used on the income tax personal allowance for years: nothing about the headline rate changes, but more of your income falls into the band where that rate applies. Graduates earning just above £29,385 are paying exactly what they always did on that first pound over the line. It's every pound above that, as pay rises push more income past a threshold that no longer moves, that adds up over a working life.
What actually changed
Student loan repayment thresholds normally rise each April in line with RPI, the retail prices index. Plan 2 — the loan type covering most English and Welsh undergraduates who started their course between 2012 and 2023 — had already climbed from £27,295 to £28,470 for the 2025-26 tax year on that basis. Under the old rules, it would have moved again for 2026-27. Instead, the government set it at £29,385 from April 2026 and froze it there through the 2028-29 tax year, with RPI increases resuming only from April 2030.
The repayment rate itself is unchanged: 9% of income above the threshold, deducted automatically through PAYE for employees or worked out via self-assessment for the self-employed. Someone earning £35,000 on a Plan 2 loan pays 9% of £5,615 — the amount above £29,385 — which works out at roughly £42 a month. That calculation hasn't moved. What has moved is how many people, and how much of their income, sit above the line as wages grow and the threshold doesn't. Anyone getting a pay rise this year that pushes them past £29,385 for the first time starts a deduction that wasn't there before, and it appears with no warning beyond a line on the payslip itself. Self-employed borrowers see the same effect land in one go, since their student loan repayment is calculated on their tax return and collected alongside the January tax bill rather than spread monthly through a payroll.
Who else is affected — and who's paying for the first time
Plan 2 isn't the only threshold in play, and the 2026-27 tax year has five running in parallel:
- Plan 1 (mostly pre-2012 English and Welsh students, plus most Northern Ireland students): £26,900
- Plan 2 (English/Welsh undergraduates, 2012–2023 entry): £29,385, frozen until April 2030
- Plan 4 (Scottish students): £33,795
- Plan 5 (English undergraduates from 2023 entry onwards): £25,000, frozen until April 2027 before it starts moving with RPI
- Postgraduate Master's and Doctoral loans: repaid at 6% rather than 9%, above £21,000
Plan 5 is the one worth watching this year specifically. It covers English undergraduates and PGCE students who started their course on or after 1 August 2023, and the first cohort became liable to repay for the first time from April 2026. If you graduated last summer and started your first full-time job this year, the deduction that's appeared on your payslip since spring is very possibly the first student loan repayment you've ever made — a different story entirely from the threshold-freeze debate playing out on Plan 2, but arriving in the same tax year.
Two loans, two deductions
Anyone repaying both an undergraduate loan (Plan 2 or Plan 5) and a Postgraduate loan pays both simultaneously once their income clears both thresholds — 9% above the undergraduate threshold plus 6% above the £21,000 postgraduate threshold. On the band of income sitting above both lines, that's 15% combined, on top of income tax and National Insurance. HMRC's payroll software keeps the two deductions separate; they show as two distinct lines on a payslip, not one combined figure, which is worth checking if the total looks higher than expected.
What the freeze actually costs
The Institute for Fiscal Studies has run the numbers on what a frozen threshold costs compared with the RPI-linked path it replaced, and the gap grows every year the freeze holds. A Plan 2 borrower earning around £30,416 — just above the new threshold — pays roughly £93 more in the 2027-28 tax year than they would have under the old inflation-linked rules. By 2029-30, that gap widens to about £259 a year, or roughly £22 a month, purely because the threshold has stayed still while their pay has moved on. Zoom out to the whole 2022 university entry cohort and the IFS estimates the three-year freeze adds around £3,000 to average lifetime repayments, in today's prices. The distribution isn't even. Graduates in the third decile of lifetime earnings — solidly middle-income, not the highest earners — come off worst, losing roughly £5,000 more over 30 years. That's not a coincidence: they earn enough to cross the threshold and keep paying for most of their working life, but rarely enough to clear the loan balance before it's written off after 30 years. High earners who'd have cleared the loan early anyway are largely unaffected by any of this; the freeze mostly bites in the middle, on people who pay for decades without ever paying the loan off.
Don't confuse this with the interest rate
A separate, unrelated number is changing around the same time, and it's easy to mix the two up. Interest rates on Plan 2 and Postgraduate loans are capped at 6% from 1 September 2026, running until 31 August 2027. That rate governs how fast the outstanding balance grows — it has no bearing on the monthly amount taken from a payslip, which is calculated purely from income above the threshold, never from the size of the loan. A graduate on a modest salary with a large outstanding balance and the full 6% interest rate still repays exactly 9% of income above £29,385, not a penny more because the balance is growing faster in the background.
What you can actually do about it
Not much changes the underlying maths, but it's worth knowing exactly where you stand. The plan type is shown on the annual statement from the Student Loans Company, and it also appears on a payslip once deductions start — check the letter next to "Student Loan" (SL) on a P60 or payslip if you're not sure which plan applies, since both your starting year and country of study affect it.
For most graduates, voluntary overpayment doesn't make financial sense: the loan is written off after 30 years regardless of the outstanding balance, so anyone who won't clear it in that time is effectively repaying a graduate tax rather than a conventional debt, and paying extra just hands the Treasury money it would otherwise have written off. The maths flips only for graduates who are close to clearing the balance entirely and can already see the finish line. If that's you, the freeze is exactly the reason to run the numbers on early repayment now — every extra year at the current threshold pushes that finish line further away.