A master's degree often pays for itself in salary, but it also adds a second loan that is repaid alongside the first. The two deductions are calculated separately and simply added together, so for graduates holding both, every pay rise is shared out between income tax, National Insurance and two student loans. This guide looks at what that means in practice.
The marginal rate nobody mentions
Plan 2 takes 9% of income above £29,385, and the Postgraduate Loan takes 6% of income above £21,000. Once you earn more than both thresholds, every extra pound loses 15p to the loans before tax is counted. As a basic-rate taxpayer you also pay 20% income tax and 8% National Insurance, so you keep 57p of each extra pound.
Above £50,270 it gets steeper. Income tax rises to 40% and National Insurance falls to 2%, but the loans still take 15%, which leaves you 43p of every extra pound. That is a 57% marginal rate on what most people think of as a comfortable salary.
A worked example at £52,000
Jordan earns £52,000 and holds both loans. Their Plan 2 deduction is 9% of the £22,615 above the Plan 2 threshold, or £2,035 a year. Their Postgraduate Loan takes 6% of the £31,000 above its threshold, which is £1,860. Together that is about £3,895 a year, or £325 a month, on top of income tax and National Insurance.
Now suppose Jordan is offered a £1,000 rise. They will see only about £430 of it. For budgeting, the useful habit is to translate any rise above £50,270 at roughly 43% rather than the 58% most salary guides assume, and to check the real figure in the calculator above before committing to a new outgoing.
Using pension contributions to soften it
The repayment is based on your earnings after salary sacrifice. If your employer offers it, every pound you sacrifice into your pension avoids 40% income tax, 2% National Insurance and 15% of loan repayments. The pound goes into your pension in full, but your take-home only falls by 43p. For a higher earner with two loans, few things give better value than a salary-sacrifice pension.
The same isn't true of a pension that uses relief at source, where you contribute from your net pay. Those contributions don't reduce the earnings that student loans are worked out on. If your employer offers a choice, sacrifice is the better route for you.
Which loan disappears first?
The two loans are repaid at the same time but cleared separately. Interest on the Postgraduate Loan is set at RPI plus 3%. Plan 2 charges between RPI and RPI plus 3% depending on your income. Both are written off 30 years after the April after you finish the relevant course. Because the master's usually finishes a year or more after the undergraduate degree, the two write-off dates are often different.
Most borrowers on moderate salaries won't repay either loan in full, which is why overpaying is rarely good value. If your earnings are high enough that you expect to clear the balances anyway, overpaying the Postgraduate Loan first saves the most interest. That's a decision to make with a few years of salary history behind you, not in your first job after graduating.
Bonuses and the two loans
Student loan deductions are worked out for each pay period, not across the year, so a bonus month triggers both loans at once. If you're paid monthly, any pay above about £2,449 attracts Plan 2 and pay above £1,750 attracts the Postgraduate Loan. A £5,000 bonus can lose £750 to the loans in that one payslip. If your income for the whole year ends up below a loan's annual threshold, you can ask the Student Loans Company for a refund once the year is over.
Next steps
Enter your salary above to see both deductions and your real keep-rate. The salary sacrifice calculator shows how much a sacrifice saves when loans are included, and the Plan 5 calculator covers the newer loan for courses started since 2023.
For a longer walk-through, see our guide Plan 2 vs Plan 5: should you overpay?, which models when overpaying saves money.