Paying every month, owing more every year: Plan 2 student loans in 2026/27

Illustration only, published .

Amira has the payslip open on her phone in the staff room, between the end of a long day shift and the bus home. Halfway down, under tax and pension, there is a line she has stopped noticing: Student Loan, £39. Once a year a statement from the Student Loans Company tells her something stranger. She has paid every single month, and she owes more than she did.

Amira is not a real person. She is an illustration, a nurse who qualified a few years ago and now sits on the intermediate step of NHS Agenda for Change Band 5 in England, which NHS Employers lists at £34,592 for 2026/27. Her friend Tom, also an illustration, is a junior engineer on a round £45,000. Both are from England and started university after 2012, so both are on Plan 2. Their stories are about the same two numbers: the repayment threshold and the interest rate.

The threshold decides the payslip

For the 2026/27 tax year, GOV.UK puts the Plan 2 repayment threshold at £29,385 a year, £2,448 a month or £565 a week. You repay 9% of income above it. What you owe plays no part in that sum. GOV.UK says it plainly: the amount you owe “has no impact on how much you repay each year”.

So Amira’s line is simple arithmetic. Her £34,592 a year is £2,882.67 a month. Take away £2,448 and £434.67 is left. Nine per cent of that is £39.12, and GOV.UK’s own worked examples round the deduction down to whole pounds, so £39. Over twelve months that comes to £468.

Tom’s £45,000 is £3,750 a month. Take away £2,448 and you have £1,302. Nine per cent is £117.18, so £117 a month, or £1,404 over the year.

That deduction is only one line on the payslip. Tax, National Insurance and pension come off too, and the Money Engine take-home salary calculator puts the full payslip together, student loan included.

The interest rate decides the balance

Interest is the other half of the story, and it works on the balance, not the payslip. Plan 2 rates are reset every 1 September using the previous March’s Retail Price Index. On 10 August 2026 the Department for Education confirmed RPI of 4.1% for 1 September 2026 to 31 August 2027. After leaving university, a Plan 2 borrower is charged RPI if they earn £29,385 or less. Above that the rate rises on a sliding scale until it reaches RPI plus 3%, which would be 7.1%, at £52,885 or more.

This year that top rate is capped at 6%. The government announced the cap on 7 April 2026, and it applies from 1 September 2026 to 31 August 2027. Before that, from 1 September 2025 to 31 August 2026, the Student Loans Company lists Plan 2 rates of 3.2% to 6.2%. So the 2026/27 tax year has two interest regimes in it: the old one until the end of August, and the capped one from 1 September. GOV.UK also notes that rates stay subject to any Prevailing Market Rate cap, which the Department for Education reviews monthly against Bank of England data.

Amira earns £5,207 above the lower threshold, and the gap between the two thresholds is £23,500. Using the Student Loans Company’s method, £5,207 divided by £23,500, times 3, adds 0.66 percentage points, so her rate is 4.76%. Tom’s £45,000 lands on 6.09%, which the Student Loans Company’s own table shows being cut back to 6% by the cap.

Why the balance keeps climbing

Here is where the payslip and the statement part company. Give Amira an illustrative balance of £45,000. At 4.76%, a year’s interest is about £2,142. She repays £468. Even before anything else happens, her balance goes up by roughly £1,674.

Give Tom an illustrative £50,000. At the capped 6%, a year’s interest is £3,000. He repays £1,404, so his balance rises by about £1,596. Without the cap, at 6.09%, the interest would have been about £3,045. That is real, but it is £45, not a rescue.

So for both of them, the balance can still grow while they pay every single month. These are simple one-year sketches, not statements. The Student Loans Company adds interest monthly. For PAYE borrowers it charges RPI through the tax year and adjusts once HMRC confirms annual income. And real balances vary a great deal.

The freeze nobody sees on a payslip

There is a slower change coming. Budget 2025 said the Plan 2 repayment threshold for borrowers from England would be frozen at £29,385 for three years from April 2027. Nothing changes on the day. But if Amira or Tom get a pay rise while the threshold stays still, more of each pound sits above the line, and the 9% takes a slightly bigger bite of the payslip.

Then there is the end point. GOV.UK says Plan 2 loans are written off 30 years after the April you were first due to repay. For many Plan 2 borrowers, that date matters as much as the balance. Whether a balance is likely to be cleared before write-off depends on salary over decades, not one year, and that is why people reach such different conclusions about overpaying. Neither choice is right in itself. It depends on the numbers and on what else the money is for.

The Money Engine student loan planner lets you put in your own salary, plan and completion year, and shows repayments, interest and the likely write-off point side by side, with or without extra payments. If the £39 or the £117 is what is squeezing the month, the Budget Planner shows where it sits next to rent, travel and food.

Amira will see the same £39 line next month, and the month after. The balance on the statement is a different number, set by different rules, and at her salary the 6% cap never comes into play. Borrowers from Wales, or anyone unsure which plan they are on, can check the details in their Student Loans Company account.

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Disclaimer

This article is general information and illustration only. It is not personalised financial advice. Money Engine is not authorised by the Financial Conduct Authority. Amira and Tom are illustrations, not real people, and their balances are illustrative. Rates, thresholds and rules can change, so check GOV.UK and your Student Loans Company account for your own figures.