When Plan 2 student loans were introduced in 2012, graduates were told repayments would be calculated on a generous threshold that would rise with average earnings — making the loans affordable relative to income. That promise has been broken. The repayment threshold has been frozen at £29,385 until 2030, and independent analysis suggests the effective cost of student loans has risen by thousands of pounds for the average graduate.
What Was Promised vs What Happened
Plan 2 borrowers (who started university 2012–2023) were initially told the repayment threshold would rise annually with the Retail Price Index or average earnings — whichever was higher. In 2021, the government froze the threshold at £27,295, then in 2023 raised it only modestly to £29,385 — where it now stays until 2030.
Had the threshold risen with earnings as promised, it would now sit at approximately £35,000–£37,000. The freeze means graduates earning £32,000 are currently repaying 9% on £2,615 (£32,000 − £29,385) = £235/year in extra repayments compared to the original promise.
Plan 2 vs Plan 5: Who Pays More?
| Feature | Plan 2 (2012–2023 starters) | Plan 5 (2023+ starters) |
|---|---|---|
| Repayment threshold | £29,385 (frozen to 2030) | £25,000 |
| Repayment rate | 9% | 9% |
| Write-off period | 30 years after graduation | 40 years |
| Interest rate | RPI + up to 3% | RPI only |
Plan 5 borrowers have a lower threshold (more repayments) but a RPI-only interest rate (slower balance growth). The IFS estimates Plan 5 graduates will repay significantly more in cash terms due to the lower threshold and longer repayment window.
Does Overpaying Ever Make Sense?
For most people, voluntarily overpaying a student loan makes no financial sense unless you are certain you will repay the entire balance before write-off. If you won't repay it all, overpaying just reduces the balance that would otherwise be written off. The only scenario where overpayment makes sense: very low loan balance, high earnings, and certainty you'll repay it all within the next few years anyway.
Frequently Asked Questions
Is this being challenged legally?
The Intergenerational Foundation has called for a full review and has described the threshold freeze as a breach of contract. No successful legal challenge has been brought to date, but parliamentary pressure is mounting.
Can I transfer from Plan 2 to Plan 5?
No. Your student loan plan is determined by when you started your course and is fixed for the duration of your loan. You cannot transfer or renegotiate the terms.
Calculate your student loan repayments with our Student Loan Calculator.