Data report
UK Student Loan Plan 5 vs Plan 2: Lifetime Cost 2026/27
Original modelling of lifetime repayments under Plan 5 (England, August 2023 onwards) versus Plan 2 (England/Wales, September 2012 - August 2023) at six income trajectories. Quantifies the engineered cost increase for the post-2023 graduate cohort.
The headline finding
Plan 5 graduates pay materially more over their lifetime than Plan 2 graduates at every income trajectory below approximately £80,000. The structural differences (£25,000 threshold vs £29,385 + 40-year window vs 30-year) shift the balance: most Plan 5 graduates will repay in full, whereas approximately 50% of Plan 2 graduates historically had outstanding balances forgiven at the 30-year point.
For a median-income graduate (£36,000 starting), Plan 2 produced lifetime repayment of approximately £17,861 on a £50,000 starting balance (often with substantial outstanding amount forgiven at year 30). Plan 5 increases this to £39,600 - a £21,739 additional cost over the lifetime, equivalent to roughly £83/month extra over 40 years.
The Department for Education's own modelling at Plan 5 introduction (February 2022) confirmed the design intent: 78% of Plan 5 students projected to repay in full versus 27% on Plan 2. The remaining 22% who do not repay in full will have spent 40 years contributing 9% on income above £25,000 - effectively a 9% additional income tax band for four decades.
Plan 5 vs Plan 2: structural comparison
| Feature | Plan 2 (pre-Aug 2023) | Plan 5 (Aug 2023+) |
|---|---|---|
| Repayment threshold 2026/27 | £29,385 | £25,000 |
| Repayment rate | 9% | 9% |
| Repayment window | 30 years | 40 years |
| Interest rate | RPI + up to 3pp (income-dependent) | RPI (flat) |
| Threshold uprating | Frozen 2022-2024, then £28,470 (2024/25), £29,385 (2025/26+) | Frozen until 2027 then RPI |
| Projected % repaying in full (DfE) | ~27% | ~78% |
Lifetime repayment by income trajectory (£50k starting balance)
Modelled at flat real income (no pay growth above inflation), 3% annual interest, £50,000 starting balance. The model is a simplification - real-world income typically grows in early career then plateaus, which favours Plan 2 (loan repaid faster within 30 years) over Plan 5 (slower start, longer tail).
| Income trajectory | Plan 2 total repaid | Plan 2 years | Plan 5 total repaid | Plan 5 years | Plan 5 extra cost |
|---|---|---|---|---|---|
| Below-median (£26k) | £0 | 30 (cap) | £3,600 | 40 (cap) | +£3,600 |
| Median (£36k) | £17,861 | 30 (cap) | £39,600 | 40 (cap) | +£21,739 |
| Above-median (£45k) | £42,160 | 30 (cap) | £72,000 | 40 (cap) | +£29,840 |
| Higher-rate edge (£55k) | £69,160 | 30 (cap) | £74,083 | 28 | +£4,922 |
| High earner (£75k) | £63,170 | 16 | £61,741 | 14 | £-1,429 |
| Top tier (£100k) | £57,892 | 10 | £57,415 | 9 | £-478 |
"(cap)" indicates the loan was not repaid in full within the term; the balance was forgiven at year 30 (Plan 2) or year 40 (Plan 5). The forgiveness mechanism is the key cost-shift to Plan 5 - the longer 40-year window dramatically reduces the % of cohort reaching forgiveness.
Monthly repayment burden by income
Annual repayment is 9% of income above the plan threshold. Plan 5's lower threshold means repayments start earlier and at higher amounts for the same gross income.
| Gross income | Plan 2 annual repayment | Plan 2 monthly | Plan 5 annual repayment | Plan 5 monthly | Plan 5 extra/month |
|---|---|---|---|---|---|
| £26,000 | £0 | £0 | £90 | £8 | +£8 |
| £30,000 | £55 | £5 | £450 | £38 | +£33 |
| £36,000 | £595 | £50 | £990 | £83 | +£33 |
| £45,000 | £1,405 | £117 | £1,800 | £150 | +£33 |
| £55,000 | £2,305 | £192 | £2,700 | £225 | +£33 |
| £75,000 | £4,105 | £342 | £4,500 | £375 | +£33 |
| £100,000 | £6,355 | £530 | £6,750 | £563 | +£33 |
At £36,000 (median UK full-time pay), Plan 5 graduates pay £83 per month vs Plan 2's £50 per month - a £33/month difference structural cost.
The 9% additional tax band perspective
Student loan repayment is functionally equivalent to an additional 9% Income Tax on income above the plan threshold (6% for Postgraduate Loan, separately). For a Plan 5 graduate earning £45,000, this stacks on top of:
- 20% Income Tax on £12,571-£50,270 = 20%
- 8% Class 1 NI on £12,571-£50,270 = 8%
- 9% Plan 5 student loan on £25,000-£125,140 = 9%
- Combined marginal = 37% on income above £25,000
This makes the £25,000-£50,270 band a 37% marginal rate zone for Plan 5 graduates, compared to 28% for non-graduates. At higher incomes the loan stacks with HICBC, the £100k Personal Allowance taper, and additional-rate tax - producing 77% marginal rates in extreme cases (see UK Marginal Tax Rate Map).
Quotable findings for media use
- Plan 5 student loans (August 2023 onwards) project approximately 78% of graduates repaying in full over the 40-year repayment window, versus approximately 27% for Plan 2 - a Department for Education modelling estimate at Plan 5 introduction in February 2022.
- The Plan 5 threshold of £25,000 (vs Plan 2's £29,385 for 2026/27) means Plan 5 graduates begin repaying at lower incomes. At £36,000 (median UK full-time pay) a Plan 5 graduate pays £990 a year vs Plan 2's £595.35.
- For a median-income graduate (£36,000 starting income, £50,000 starting balance), Plan 5 lifetime repayment is approximately £39,600 vs Plan 2's £17,861 - a £21,739 extra lifetime cost.
- The structural 40-year repayment window (vs Plan 2's 30 years) extends loan-burdened years from career start (age ~22) through age ~62 - covering the entire working life for most graduates.
- Plan 5 student loan repayment functions as a 9% additional Income Tax band on earnings above £25,000. Combined with PAYE Income Tax (20%) and NI (8%), a Plan 5 graduate earning between £25k-£50k faces a 37% marginal effective rate on every additional pound earned.
- The £25,000 Plan 5 threshold has been frozen since the system launched in August 2023 and is confirmed frozen until April 2027. Combined with the wider freeze regime (Personal Allowance + higher-rate threshold to April 2031), nominal wage rises drag Plan 5 graduates into higher repayment amounts each year.
Methodology
Repayment thresholds and rates pulled from the 2026/27 ruleset at src/data/tax/uk-2026-27.ts. Plan 2: £29,385 threshold, 9% rate, 30-year term. Plan 5: £25,000 threshold, 9% rate, 40-year term.
Annual simulation model: each year computes 9% × (income - threshold) repayment, accrues 3% interest on remaining balance, deducts repayment, advances to next year until balance ≤ 0 (paid in full) or term expires (balance forgiven).
Simplifying assumptions:
- Flat real income (CPI-tracking pay growth = no real income increase or decrease). Real-world early-career income typically grows 4-8% above inflation in years 1-5, favouring Plan 2.
- 3% annual interest (RPI + 0 simplification - actual Plan 2 has income-dependent RPI+0 to RPI+3 schedule; Plan 5 is RPI only by Government decision).
- £50,000 starting balance (representative for a 3-year English degree with maintenance loans + tuition fees - actual range £30,000-£70,000+).
- No voluntary overpayment.
- Salary remains in PAYE throughout (no self-employment transition which has different timing rules).
Sensitivity: at higher real-income growth (typical early career), Plan 2 graduates repay faster within the 30-year window and the differential to Plan 5 widens. At lower or zero real-income growth (modelled here), the differential is conservative.
Full data provenance + every source URL at salarytax.uk/methodology. Live calculator at /student-loan-calculator.
About this report
Original data report produced by salarytax.uk and republishable in part or whole with attribution to salarytax.uk. Specific calculator permalinks for journalist drill-down:
- UK Student Loan Calculator - all plans + dual-plan modelling
- Median Plan 5 graduate take-home (£36k)
- Higher graduate take-home (£45k)
Companion reports:
- UK Marginal Tax Rate Map 2026/27 - shows graduate 37% marginal
- UK Fiscal Drag Cost Since 2021
Press contact and full quotable assertions at salarytax.uk/press.