Plan 1 vs Plan 2 Student Loan — Key Differences Compared

Overview — Who Is on Which Plan?

Your student loan plan is determined by when and where you took out your loan. You cannot choose or switch between plans. Understanding which plan you are on is the first step to understanding your repayment obligations, so if you are unsure, check our guide on which student loan plan you are on.

Plan 1 applies to students who took out loans in England and Wales before 1 September 2012, or in Northern Ireland at any time. This covers the pre-£9,000 fee era, when tuition fees were capped at approximately £3,000 per year. As a result, Plan 1 borrowers typically have much smaller loan balances — commonly £15,000-£25,000 — compared to their Plan 2 counterparts.

Plan 2 applies to students who took out loans in England and Wales from 1 September 2012 onwards. This coincides with the introduction of £9,250 tuition fees, meaning Plan 2 borrowers typically owe significantly more — commonly £40,000-£60,000 depending on course length and maintenance loan amounts. The higher balances fundamentally change the repayment dynamics compared to Plan 1.

It is worth noting that some graduates can be on both plans simultaneously. If you took out a Plan 1 undergraduate loan before 2012 and then returned to study after 2012, or took out a Postgraduate Loan, you may have loans on multiple plans. In this situation, repayments are calculated separately for each plan, with Plan 1 being repaid first when both are undergraduate plans.

Side-by-Side Comparison

Here are the key differences between Plan 1 and Plan 2 laid out side by side. Each of these differences has significant implications for how much you repay, how long it takes, and whether you will clear your balance before write-off.

Repayment Threshold — £26,900 vs £29,385

The repayment threshold is the salary level at which you start making repayments. Anything you earn below the threshold is not subject to student loan deductions. Plan 1 has a lower threshold of £26,900, while Plan 2 has a higher threshold of £29,385 — a difference of £2,485 per year.

This means that at any given salary, Plan 1 borrowers pay more per month than Plan 2 borrowers. For example, at a salary of £35,000, a Plan 1 borrower repays 9% of (£35,000 minus £26,900) which equals £60.75 per month, while a Plan 2 borrower repays 9% of (£35,000 minus £29,385) which equals £42.11 per month. The Plan 1 borrower pays £18.64 more per month, or £223.65 more per year, despite typically having a smaller balance.

This threshold difference narrows in relative terms as salary increases. At £50,000, Plan 1 repays £173.25 per month versus Plan 2 at £154.61 — a difference of £18.64, which is the same absolute amount regardless of salary. The gap is always exactly 9% of £2,485 divided by 12, which is £18.64 per month. While this seems like a disadvantage for Plan 1 borrowers, the lower interest rate and smaller typical balances more than compensate in most cases.

Interest Rates — 3.2% vs 3.2%–6.2%

Interest rates represent the most dramatic difference between Plan 1 and Plan 2, and they fundamentally change the economics of each loan. For a thorough explanation of how interest rates work across all plans, see our guide on student loan interest rates explained.

Plan 1 interest is the lower of RPI (currently 3.2%) or the Bank of England base rate plus 1%. This provides a natural cap that protects borrowers from excessive interest accumulation. In the current environment, the rate is 3.2%. On a £20,000 balance, this means £640 in annual interest — a manageable amount that is easily exceeded by repayments at moderate salaries.

Plan 2 interest is far more complex and can be much higher. The rate scales with income between two thresholds: at the repayment threshold of £29,385, you pay RPI only (3.2%), and at £52,885 and above, you pay the maximum rate of RPI plus 3% (6.2%). Between these thresholds, the rate increases linearly. While studying, you always pay the maximum rate of RPI plus 3%. This means a graduate earning £50,000 with a Plan 2 loan faces an interest rate of approximately 5.8%, while a Plan 1 borrower at the same salary pays just 3.2%.

The practical impact is enormous. On a £45,000 Plan 2 balance at the maximum 6.2% rate, annual interest is £2,790. On a £20,000 Plan 1 balance at 3.2%, annual interest is £640. The Plan 2 borrower pays over five times as much in annual interest despite the rate being only 2.3 times higher, because the balance is also much larger. This interest differential is the primary reason why Plan 2 borrowers are far less likely to repay in full — many will see their balances grow for years before repayments begin to outpace interest, if they ever do.

Write-Off Periods — 25 Years vs 30 Years

Plan 1 loans are written off 25 years after the April following your graduation (or the April after you left your course). Plan 2 loans are written off after 30 years. This five-year difference gives Plan 2 borrowers more time to repay, but also means five more years of potential repayments and interest accumulation.

For Plan 1 borrowers, the 25-year write-off is rarely relevant because most will repay in full well before then. With typical balances of £15,000-£25,000 and a 3.2% interest rate, graduates reaching average UK salaries (around £35,000) will clear their Plan 1 balance within 15-20 years. Only those who spend significant periods earning below the threshold (due to career breaks, part-time work, or time spent abroad) are likely to reach the 25-year write-off date with an outstanding balance.

For Plan 2 borrowers, the 30-year write-off is highly relevant. Government estimates suggest that only around 20-25% of Plan 2 borrowers will repay in full. The majority will make repayments for 30 years and then have a remaining balance written off. In many cases, the balance at write-off will be higher than the original loan amount due to interest accumulation. This is a feature of the system, not a bug — the government designed Plan 2 knowing that most borrowers would not repay in full. To understand exactly when your loan will be written off, see our guide on when your student loan is written off.

Typical Balances and Total Cost

The starting balance is a crucial factor in comparing the two plans. Plan 1 borrowers typically graduated with £15,000-£25,000 in debt, reflecting tuition fees of around £3,000 per year plus maintenance loans. Plan 2 borrowers typically graduate with £40,000-£60,000, reflecting tuition fees of up to £9,250 per year plus higher maintenance loans.

Despite the much larger Plan 2 balances, the total amount actually repaid by many Plan 2 borrowers may be similar to or even less than what Plan 1 borrowers repay. This apparent paradox arises because Plan 2 borrowers who do not repay in full (the majority) effectively pay a fixed percentage of their income above the threshold for 30 years, regardless of their balance. The balance and interest rate only matter for the minority who repay in full.

For Plan 1 borrowers, by contrast, the balance and interest rate almost always matter because most will repay in full. A Plan 1 borrower with a £20,000 balance earning £35,000 will repay approximately £22,000-£24,000 in total (principal plus interest over 12-15 years). A Plan 2 borrower with a £45,000 balance at the same salary will repay approximately £16,000-£18,000 in total before write-off after 30 years — less than the Plan 1 borrower, despite owing more than double.

Worked Example — £35,000 Salary

Let us compare the two plans side by side at a salary of £35,000, which is close to the UK median for full-time employees.

At £35,000, the Plan 1 borrower is actively reducing their balance. Repayments of £729 exceed interest of £640, so the principal falls by approximately £89 per year. The balance will slowly decline, and with salary growth, the rate of decline accelerates. Most Plan 1 borrowers at this salary will repay in full within 20 years.

The Plan 2 borrower, by contrast, is seeing their balance grow. Annual interest of approximately £1,770 massively exceeds repayments of £505, adding nearly £1,265 to the balance each year. The £45,000 starting balance will grow to £50,000, £55,000, and beyond. Even with moderate salary growth, the balance may continue growing for many years before repayments begin to outpace interest — and for many borrowers at this salary level, that crossover point never arrives before the 30-year write-off.

This example illustrates why the two plans require fundamentally different mental models. Plan 1 at £35,000 is a loan that is being repaid. Plan 2 at £35,000 is effectively a graduate tax — a deduction from your salary that continues for 30 years regardless of how much you owe. The balance figure is largely academic because it will never be repaid in full.

Worked Example — £50,000 Salary

At a higher salary of £50,000, the picture changes significantly for both plans.

At £50,000, the Plan 1 borrower is crushing their loan. Annual repayments of £2,079 dwarf the £640 in interest, reducing the principal by over £1,400 per year. A £20,000 balance will be cleared in roughly 10-12 years. The loan genuinely functions like debt at this salary — it is being repaid with interest, and will be eliminated. For more detail, see repayments on a £50,000 salary.

The Plan 2 borrower at £50,000 is in a more nuanced position. Annual interest of £2,624 still exceeds annual repayments of £1,855, so the balance is growing by approximately £769 per year. However, the gap has narrowed significantly compared to £35,000. With continued salary growth beyond £50,000, the crossover point — where repayments exceed interest — is within reach. At £60,000, Plan 2 repayments are approximately £2,755 while interest on a £40,000 balance is approximately £2,400 — the balance starts declining. Whether a Plan 2 borrower earning £50,000 today will repay in full depends on whether their salary continues to grow toward £60,000 and beyond.

Likelihood of Full Repayment

This is the single most important practical difference between Plan 1 and Plan 2. On Plan 1, the combination of lower balances, lower interest rates, and a lower threshold (which generates higher repayments) means that the vast majority of borrowers repay in full. Government data suggests that around 80-90% of Plan 1 borrowers will clear their loans before the 25-year write-off.

On Plan 2, the situation is reversed. The combination of higher balances, higher interest rates, and a higher threshold means that only an estimated 20-25% of borrowers will repay in full. The remaining 75-80% will make income-contingent repayments for 30 years and then have the remaining balance written off. This cohort — the majority — essentially pays a graduate tax of 9% on income above £29,385 for 30 years, regardless of their starting balance or interest rate.

This has profound implications for financial planning. If you are on Plan 1, treat your student loan as real debt that will be repaid. Interest is a genuine cost, and strategies to minimise total interest (such as salary sacrifice or potentially overpaying) are worth considering. If you are on Plan 2 and unlikely to repay in full, treat it as a tax. The balance and interest rate are irrelevant to your lifetime cost — only your salary trajectory matters. Read our guide on whether you should repay early for a detailed decision framework.

Interest Rate Deep Dive

The interest rate mechanics are worth exploring in detail because they represent the starkest difference between the two plans. For a comprehensive explanation, see student loan interest rates explained.

Plan 1 interest is straightforward: it is the lower of RPI or the Bank of England base rate plus 1%. In the current environment, with RPI at 3.2% and the base rate at 3.75% (making base rate plus 1% equal to 4.75%), the Plan 1 rate is capped at RPI (3.2%). This means Plan 1 borrowers benefit from a cap that prevents their interest rate from becoming excessive. Historically, Plan 1 rates have ranged from 0.9% to 6.6%, but the dual-cap mechanism provides stability.

Plan 2 interest is more aggressive. While studying (and for the tax year of graduation), you pay RPI plus 3% — currently 6.2%. After that, the rate scales linearly with income between the repayment threshold (£29,385, where the rate is RPI only at 3.2%) and the upper threshold (£52,885, where the rate is the maximum RPI plus 3% at 6.2%). There is no cap based on the Bank of England base rate, meaning Plan 2 rates can be very high in absolute terms during periods of high RPI.

For graduates earning above £52,885, the Plan 2 rate is 6.2% — more than double the Plan 1 rate of 3.2%. On a £50,000 balance, that is £3,100 per year in interest versus £640 on a £20,000 Plan 1 balance. Even accounting for the difference in balance size, Plan 2 interest in absolute terms is dramatically higher. However, for borrowers who will never repay in full, this interest is essentially theoretical — it increases a balance that will ultimately be written off, costing the borrower nothing additional.

Salary Sacrifice Comparison

Both Plan 1 and Plan 2 borrowers benefit from salary sacrifice, but the mechanics are identical because the repayment rate (9%) is the same. The difference lies in the threshold — salary sacrifice below the Plan 2 threshold of £29,385 eliminates Plan 2 repayments entirely, while the same approach for Plan 1 requires sacrificing below the lower threshold of £26,900 to achieve the same effect.

In practice, the salary sacrifice decision is more nuanced for Plan 2 borrowers. If you are on Plan 2 and will not repay in full, salary sacrifice reduces your repayments but does not change your total cost — it simply extends the repayment period (potentially beyond 30 years, where the balance is written off). In this case, salary sacrifice is effectively free money: you reduce a payment that was never going to clear your debt, while building pension savings. For Plan 1 borrowers who will repay in full, salary sacrifice reduces current repayments but extends the total repayment timeline, potentially increasing total interest paid. The net effect depends on the specifics of each case.

Which Plan Is "Better"?

Neither plan is inherently better — they serve different cohorts and have different implications depending on your salary trajectory. Here is a summary of when each plan works in the borrower's favour:

• Plan 1 is better if you earn a lower salary: Surprisingly, Plan 1 is arguably worse for low earners because they will repay in full (paying real interest), whereas Plan 2 low earners have their balance written off. A Plan 1 borrower earning £30,000 for their career pays back every penny plus interest, while a Plan 2 borrower at the same salary pays less in total because the write-off eliminates the balance.
• Plan 2 is better for very high earners: High earners on Plan 2 face 6.2% interest, but with large repayments, they clear the balance faster. However, Plan 1 high earners clear their much smaller balance even faster and pay far less total interest. Overall, Plan 1 high earners pay less in total than Plan 2 high earners.
• Plan 2 write-off benefits most borrowers: For the majority of Plan 2 borrowers (75-80%) who will have their balance written off, the system works as a graduate tax. Total lifetime repayments depend only on salary, not on the balance or interest rate. This provides a safety net that Plan 1 borrowers, who mostly repay in full, do not benefit from as much.

For a full analysis of your own position, use our Plan 1 calculator or Plan 2 calculator to model your specific situation. The comparison tool lets you see both plans side by side with your own salary and balance figures.

Key Takeaways

• Plan 1 has a lower threshold (£26,900 vs £29,385), so you start repaying earlier and pay £18.64 more per month at any given salary.
• Plan 2 has much higher interest rates (up to 6.2% vs 3.2%), but this only matters if you repay in full.
• Plan 1 balances are typically much smaller (£15,000-£25,000 vs £40,000-£60,000), making full repayment far more likely.
• Plan 1 writes off after 25 years; Plan 2 after 30 years.
• Most Plan 1 borrowers repay in full; most Plan 2 borrowers do not.
• For Plan 2 borrowers who will not repay in full, treat the loan as a graduate tax — the balance and interest rate are irrelevant to your total cost.
• Salary sacrifice benefits both plans, but is particularly advantageous for Plan 2 borrowers who will not repay in full.

Explore our full suite of tools and guides for more information: how repayments work, whether to repay early, interest rates explained, when your loan is written off, and salary breakdowns at £30,000, £40,000, £50,000, and £60,000.