Explanation of Plan 2 student loans and repayment threshold.

The UK government is reviewing Plan 2 student loans, focusing on high interest rates and frozen repayment thresholds that may increase the financial burden on graduates. Changes aim to ensure fairer repayment terms and clearer guidance for borrowers.

The Treasury Committee in the United Kingdom has commenced a formal review to examine the fairness and effectiveness of the student loan system for graduates in England. The inquiry encompasses all existing student loan structures, with particular attention to Plan 2 loans, which have attracted criticism due to high interest rates and the policy of freezing repayment thresholds.

Overview of Plan 2 Student Loans

Plan 2 loans are available to students who began higher education in England between September 2012 and July 2023, and these loans also apply in Wales. Graduates under Plan 2 repay 9% of any income that exceeds the repayment threshold. In the November 2025 Budget, Chancellor Rachel Reeves confirmed that the repayment threshold would remain fixed at £29,385 from 2027 until 2030, without adjustments for inflation. This freeze implies that graduates will start repayment sooner, and those with higher incomes will make larger payments.

Supporters of borrowers have called for a reconsideration of the threshold freeze, advocating for reductions in both the repayment rate and interest rates. Plan 2 loans currently accumulate interest at the Retail Prices Index (RPI) plus up to 3%, depending on the borrower’s income. Many borrowers report challenges in lowering the total debt, which frequently reaches tens of thousands of pounds, despite making regular repayments over several years. Plan 2 loans have now been replaced by Plan 5 loans in England, which have different repayment terms.

Structure of Student Loans Across the UK

Student loans generally include two components: a tuition fee loan and a maintenance loan for living expenses. Tuition fee loans cover the annual cost of study as follows:

• England and Wales: £9,535 per year
• Northern Ireland: £4,855 for Northern Irish students or £9,535 for other UK students
• Scotland: Free for most Scottish students; £9,535 for other students

Maintenance loans are intended to cover accommodation, food, books, and equipment, with amounts means-tested based on household income. Additional allowances are available for students with disabilities, children, or those classified as estranged students under 25 with no parental contact. Research by the Higher Education Policy Institute in May 2024 found that maintenance loans in England cover only about half of living costs, with reduced support for students residing in London.

Maintenance Loan Levels in 2025/26

• England: Maximum for students living away from home outside London increased to £10,544 from £10,227
• Wales: Maximum for students living away from home rose to £11,345 from £11,150
• Scotland: Maximum annual maintenance loan of £9,400 for under-25s, with additional bursaries and grants available
• Northern Ireland: Maximum loan of £8,132, or £11,391 for students living in London

England plans to reintroduce maintenance grants of up to £1,000 annually for students from lower-income households enrolled in Industrial Strategy-aligned courses starting in 2028. Welsh students may receive grants that do not require repayment.

Tuition Fee and Maintenance Loan Adjustments

Starting in 2026, tuition fees and maintenance loans across the UK will increase annually based on the RPIx measure, which accounts for inflation minus mortgage interest. At the October 2025 rate, tuition fees could rise by approximately £400 per year, exceeding £9,900. Universities in England may only charge maximum fees if they meet quality standards set by the Office for Students. Institutions failing to meet these standards may face limits on student recruitment.

Repayment Procedures

Tuition fees are paid directly to universities, while maintenance loans are deposited into student bank accounts at the start of each term in England, Wales, and Northern Ireland, and monthly in Scotland. University registration is required, often including submission of a student finance entitlement letter. Funding applications can be submitted up to nine months after the academic year begins, through the relevant regional student finance body.

Interest Rates on Student Loans

Interest accrues from the first day of the loan. In England, rates are based on RPI and updated each September, with potential mid-year adjustments. Current rates for students starting university in 2023 or later are 4.3%. Other regions’ rates are:

• Wales: Up to 7.3%, depending on income
• Scotland: 4.3%
• Northern Ireland: 4.3%

Repayment Thresholds and Amounts

Repayments commence only when earnings exceed the prescribed thresholds, with graduates paying 9% on income above this limit. Plan 5 loans in England have a threshold of £25,000; Wales £28,470; Scotland £32,745; and Northern Ireland £26,065. Plan 2 thresholds will increase from £28,470 to £29,385 in April 2026 and remain frozen for three years. Repayments are collected through the tax system, with options to make additional payments without penalty. Refunds are provided for overpayments caused by administrative errors; in 2023/24, £61 million was refunded to 216,300 borrowers, averaging £280 each. A digital refund system launched in May 2024 served over 400,000 users within six months.

Loan Write-Off Periods

• England (Plan 5): 40 years after course completion
• Plan 2 (England and Wales): 30 years
• Scotland: 30 years
• Northern Ireland: 25 years

Loans must be repaid even if students withdraw from their courses before completion.

Sources:

• Treasury Committee set to review fairness of student loans
• MPs to investigate student loan repayment terms as anger grows
• MPs launch inquiry into student loans system
• What are Plan 2 student loans and what is the repayment threshold?