Plan 5 Student Loan Repayment Threshold Explained (2026 Guide)

From April 2026, a new entry appeared on UK payslips and Self Assessment tax returns: Plan 5. It’s the student loan repayment plan for English undergraduates who started their course on or after 1 August 2023, and it comes with the lowest repayment threshold of any current plan. If you’re one of the first Plan 5 borrowers, an employer running payroll for Plan 5 staff, or simply trying to work out how much of your salary will disappear into loan repayments this year, this guide breaks down exactly what the Plan 5 student loan repayment threshold means for 2026 and beyond.

Table of Contents

• What Is the Plan 5 Student Loan?
• Plan 5 Student Loan Repayment Threshold for 2026/27
• How Plan 5 Repayments Are Actually Calculated
• Plan 5 vs Plan 1, Plan 2, Plan 4 and the Postgraduate Loan: Threshold Comparison
• Interest Rate on Plan 5 Loans
• When Do Plan 5 Repayments Actually Start?
• The 40-Year Write-Off: Why It’s Longer Than Older Plans
• Self-Employed Borrowers on Plan 5
• Can You Get a Refund If You Overpay?
• Plan 5 vs Plan 2: Who Actually Pays More?
• Frequently Asked Questions About the Plan 5 Threshold
• A Brief History: How We Got to Plan 5
• How Plan 5 Affects Mortgage Applications and Budgeting
• Common Payroll Mistakes With Plan 5 (And How to Avoid Them)
• Key Takeaways

What Is the Plan 5 Student Loan?

Plan 5 is the newest of the UK’s income-contingent student loan repayment plans, introduced by Student Finance England for undergraduate, PGCE and Advanced Learner Loan borrowers who began their course on or after 1 August 2023. It replaced Plan 2 as the default loan type for new English students, and it comes with materially different terms: a lower repayment threshold, a longer 40-year write-off period, and a different interest-rate formula.

Alongside Plan 5 sit four other loan types that HMRC and payroll teams still need to track: Plan 1 (pre-2012 English/Welsh borrowers, plus older Scottish and Northern Irish loans), Plan 2 (English/Welsh borrowers from 2012–2023), Plan 4 (Scottish borrowers), and the Postgraduate Loan (Plan 3) for Master’s and Doctoral study. Each has its own threshold, and applying the wrong one on a payslip produces a systematic over- or under-deduction every pay period.

Plan 5 Student Loan Repayment Threshold for 2026/27

The headline figure borrowers want is simple: for the 2026/27 tax year, the Plan 5 repayment threshold is £25,000 a year. Broken down by pay period, that works out to:

• £25,000 per year
• £2,083 per month
• £480 per week

Once your gross income (before tax, but including bonuses and overtime in the pay period they’re received — see our guide to overtime tax rules for 2026 for how overtime itself is taxed) goes above these figures, 9% of the amount above the threshold is deducted automatically through PAYE, or paid via Self Assessment if you’re self-employed. This is currently the lowest threshold of any active student loan plan, which is precisely why Plan 5 borrowers, on average, start repaying earlier in their careers and repay more over the life of the loan than Plan 2 borrowers did.

The Department for Education has confirmed that the £25,000 threshold will remain fixed until April 2027, at which point it is intended to rise annually in line with the Retail Prices Index (RPI), rather than being frozen for years at a time the way the Plan 2 threshold has been. This is set out in detail in the House of Commons Library’s briefing on student loan thresholds.

How Plan 5 Repayments Are Actually Calculated

Understanding the Plan 5 student loan repayment threshold matters for every borrower’s monthly budget. The calculation itself is straightforward once you know the threshold: you pay 9% of everything you earn above £25,000 a year. Here’s what that looks like in practice, using HMRC’s own reference figures:

One important quirk: PAYE deductions are worked out per pay period, not on your annual salary in one lump sum. That means if you receive a one-off bonus that pushes a single month’s pay above £2,083, you’ll have a Plan 5 deduction taken that month — even if your total annual income stays under £25,000. If that happens, you can reclaim the overpayment from the Student Loans Company (SLC) directly after the tax year ends. Independent budgeting guidance on handling these deductions is also available from MoneyHelper’s student finance section.

Plan 5 vs Plan 1, Plan 2, Plan 4 and the Postgraduate Loan: Threshold Comparison

Understanding where Plan 5 sits relative to the other plans matters, especially for anyone juggling more than one loan type or for payroll teams processing SL1 start notices. Here are the 2026/27 thresholds side by side:

Two things stand out. First, Plan 5 has the lowest threshold of any undergraduate plan, meaning graduates start repaying sooner than they would under Plan 1, 2 or 4. Second, if someone holds both an undergraduate loan and a postgraduate loan at the same time, both can be deducted simultaneously — but only one undergraduate plan (1, 2, 4 or 5) applies at once. Where an employee has selected more than one undergraduate plan by mistake, employers are instructed to use whichever plan has the lowest threshold. Employers can confirm exact plan types and thresholds using HMRC’s official special rules for student loan deductions guidance.

Interest Rate on Plan 5 Loans

Interest is where Plan 5 actually offers borrowers a genuine improvement over Plan 2. Under Plan 2, interest could run as high as RPI plus 3 percentage points. Under Plan 5, interest is charged at RPI only, with no additional percentage on top. In practical terms, this means Plan 5 borrowers should never repay more than they originally borrowed in real (inflation-adjusted) terms — the pound amount owed still rises with inflation, but not because of extra interest charges layered on top.

The applicable RPI rate resets every September, based on the RPI figure from the preceding March. As of the most recent update in 2026, the rate borrowers are working with sits at roughly 3.2%, though this is a snapshot rather than a fixed number — anyone budgeting for repayments should check the current rate on GOV.UK’s student loan repayment page each year rather than relying on a figure that’s already out of date.

When Do Plan 5 Repayments Actually Start?

April 2026 marks the official start date for Plan 5 repayment liability, but that doesn’t mean every Plan 5 borrower started paying immediately. Because the first Plan 5 cohort enrolled in the 2023/24 academic year, most of those students are still completing three- or four-year courses, so the bulk of Plan 5 repayments only begin properly from April 2027 onward. The borrowers affected first, from April 2026, were mainly those on shorter courses or who left their studies early.

For employees, the process runs through HMRC’s standard Start Notice system. Once SLC data confirms someone has left their course and their income has crossed the threshold, HMRC issues an SL1 start notice (or a PGL1 for postgraduate loans) to the employer, instructing them which plan type to deduct from that point on. Employers who were previously unsure which default plan to use were told to apply Plan 1 until 5 April 2026; from 6 April 2026, the default changed to Plan 5 for any employee whose plan type is unclear.

Getting this wrong matters. An employer that applies the wrong threshold — say, deducting at the Plan 2 threshold of £29,385 instead of the Plan 5 threshold of £25,000 — creates a systematic underpayment that HMRC will eventually flag and pursue, across every affected pay period. The Chartered Institute of Payroll Professionals (CIPP) publishes regular updates for payroll teams navigating exactly this kind of change.

The 40-Year Write-Off: Why It’s Longer Than Older Plans

Plan 5 loans are written off 40 years after the April a borrower was first due to start repaying — a full decade longer than the 30-year write-off on Plan 2 and Plan 4, and 15 years longer than Plan 1’s 25-year term. Any balance, including accrued interest, still outstanding after 40 years is cancelled automatically, and the borrower owes nothing further.

The trade-off is clear: a lower threshold and a longer repayment window mean more Plan 5 borrowers are likely to clear their loan in full before it’s written off, compared with older plans. Independent analysis published around Plan 5’s introduction estimated that roughly half of new Plan 5 students would repay their loan in full, compared with under a quarter of Plan 2 borrowers — a meaningful shift in who actually pays back what they borrowed, and how much of it.

Loans are also cancelled early if a borrower dies or becomes permanently unable to work due to disability, in line with the same rules that apply to every other plan.

Self-Employed Borrowers on Plan 5

If you’re self-employed, Plan 5 deductions aren’t taken automatically from each invoice or client payment the way PAYE deductions are taken from a payslip. Instead, your Plan 5 repayment is calculated as part of your annual Self Assessment tax return, based on your total taxable income for the year measured against the same £25,000 threshold. Repayments are due alongside your regular Self Assessment tax bill, so it’s worth setting aside roughly 9% of anything you expect to earn above £25,000 across the year, so the payment doesn’t come as a surprise when your return is due. HMRC’s Self Assessment student loan guidance explains exactly how this is calculated on your return.

Can You Get a Refund If You Overpay?

Yes. The Student Loans Company can refund Plan 5 overpayments in several situations: if your loan is fully repaid but deductions continued regardless (usually caught and refunded automatically), if a one-off bonus pushed a single pay period over the monthly threshold even though your annual income stayed below £25,000, or if you were placed on the wrong plan type entirely. In most cases you’ll need to contact the SLC directly with your payslips or P60 to request a refund once the tax year has ended, rather than waiting for it to happen automatically.

Plan 5 vs Plan 2: Who Actually Pays More?

It’s tempting to assume that a lower threshold and a longer repayment term automatically make Plan 5 worse for borrowers, but the picture is more nuanced. Plan 5’s RPI-only interest rate is cheaper than Plan 2’s RPI-plus-3% rate, so in real terms Plan 5 borrowers never repay more than they borrowed — something that wasn’t guaranteed under Plan 2. On the other hand, the lower £25,000 threshold means Plan 5 graduates start making monthly deductions sooner in their career, and the 40-year term means more of them will be still repaying (or will have fully repaid) decades after graduating, compared with Plan 2 borrowers whose loans are wiped after 30 years.

In short: higher earners tend to fare relatively better under Plan 5’s cheaper interest, while lower and middle earners feel the lower threshold more acutely in their monthly take-home pay, especially in the years right after graduating. Save the Student’s repayment calculator is a useful free tool for running your own numbers under each plan.

Frequently Asked Questions About the Plan 5 Threshold

What is the Plan 5 student loan repayment threshold for 2026?

The Plan 5 repayment threshold for the 2026/27 tax year is £25,000 a year (£2,083 a month, or £480 a week). You only repay 9% of income earned above this amount.

Will the Plan 5 threshold increase in future years?

The threshold is fixed at £25,000 until April 2027. From April 2027 onward, it’s intended to rise annually in line with RPI inflation, rather than being frozen for multiple years as Plan 2’s threshold has been.

Is Plan 5 the same as Plan 2?

No. Plan 5 applies to English undergraduates who started their course on or after 1 August 2023, and it has a lower threshold (£25,000 vs Plan 2’s £29,385), a longer 40-year write-off (vs 30 years), and a cheaper RPI-only interest rate (vs RPI plus up to 3%).

Do Plan 5 repayments start automatically?

Yes, for employees. Once HMRC issues an SL1 start notice to your employer, deductions begin automatically through PAYE from your next payslip. Self-employed borrowers pay through Self Assessment instead.

What happens if my Plan 5 loan isn’t fully repaid after 40 years?

Any remaining balance, including interest, is written off automatically 40 years after the April you were first due to start repaying. You won’t owe anything further after that point.

A Brief History: How We Got to Plan 5

UK student loan repayment plans have evolved several times since 1998, and each reform has generally shifted more of the repayment burden onto graduates while adjusting thresholds, interest, and write-off periods in different directions. Plan 1 covered students from 1998 to 2012 with a relatively low interest rate and a 25-year write-off. Plan 2 arrived in 2012 alongside the rise in tuition fees to £9,000 a year, offering a higher threshold but steeper interest of up to RPI plus 3%. Plan 4 was introduced for Scottish students, who benefit from higher thresholds tied to Scotland’s separate tuition fee arrangements. Plan 5 is the result of the 2022 Higher Education reforms (often referred to as the Augar-influenced changes), designed explicitly to increase the proportion of graduates who repay their loans in full, rather than having large balances written off after three decades. Knowing this history helps explain why Plan 5’s terms look the way they do: a lower threshold and longer term were deliberate policy choices, not oversights.

How Plan 5 Affects Mortgage Applications and Budgeting

Student loan repayments are treated as a regular deduction from income, similar to tax and National Insurance, which means mortgage lenders and other credit providers typically factor Plan 5 repayments into affordability assessments in the same way they treat any other recurring deduction from take-home pay. Because Plan 5’s £25,000 threshold is lower than Plan 2’s, graduates on Plan 5 are more likely to have an active student loan deduction showing on their payslips and bank statements earlier in their career, which lenders will see when calculating disposable income for a mortgage or major loan application. It’s worth building the 9% marginal deduction into any personal budget as soon as income crosses £25,000, rather than being caught out when the first reduced payslip arrives. Our take-home pay calculator lets you factor Plan 5 deductions in alongside tax, National Insurance and overtime to see your real take-home figure.

Common Payroll Mistakes With Plan 5 (And How to Avoid Them)

For employers and payroll bureaus, Plan 5 introduces a fifth plan code to track correctly, and a few mistakes come up repeatedly in the first years of any new plan’s rollout:

• Defaulting to the wrong plan. Before 6 April 2026, the fallback default for unclear cases was Plan 1; from 6 April 2026 onward, it’s Plan 5. Using an outdated default produces incorrect deductions.
• Applying Plan 2’s threshold to a Plan 5 employee. Because the two plans can look similar on old paperwork, it’s easy to key in the wrong threshold — a £4,385 difference that compounds every pay period until corrected.
• Missing simultaneous postgraduate deductions. An employee can have both a Plan 5 undergraduate deduction and a Postgraduate Loan (Plan 3) deduction running at the same time; payroll software needs to handle both concurrently rather than treating them as mutually exclusive.
• Ignoring SL1/PGL1 stop notices. Deductions must stop as soon as HMRC issues a stop notice, just as they must start promptly when a start notice arrives — continuing deductions after a stop notice is as much a compliance issue as failing to start them.

Getting this right matters for both sides: employees can end up under- or over-paying for months before an error is spotted, and employers who apply the wrong threshold systematically are the ones HMRC will ultimately hold responsible for correcting it.

The Plan 5 student loan repayment threshold for 2026/27 is £25,000 a year, the lowest of any current UK student loan plan, with 9% deducted on earnings above that level. It comes paired with a longer 40-year repayment window and a cheaper RPI-only interest rate than Plan 2. Whether you’re a graduate budgeting for your first payslip deduction or an employer making sure payroll applies the right SL1 start notice, the core numbers to remember are simple: £25,000 a year, £2,083 a month, £480 a week, and 9% on everything above. For the most current, government-verified figures, always cross-check against GOV.UK’s official student loan repayment guidance and the Student Loans Company before making financial decisions, as thresholds and interest rates are reviewed annually.

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