Plan 2 vs Plan 5: should you overpay your student loan?

How the two plans differ

Plan 2 and Plan 5 both take 9% of your earnings above a threshold, collected through payroll or Self Assessment. Three differences shape almost everything else:

The threshold. Plan 2's threshold is £29,385 in 2026/27, and the government has frozen it there until April 2030, after which it's due to rise with RPI. Plan 5's is £25,000. A lower threshold means Plan 5 borrowers repay more each year on the same salary: on £35,000, Plan 2 takes £505 a year and Plan 5 takes £900.

The interest. Plan 2 charges RPI plus up to 3%, depending on income. Graduates earning at or below the threshold pay RPI only, and the extra rises on a sliding scale to the full 3% for higher earners. For 2026/27 that would mean up to 7.1%, but it's capped at 6%. Plan 5 charges RPI only, currently 4.1%, so the balance roughly holds its real value rather than growing faster than inflation.

The term. Plan 2 balances are written off 30 years after the April you were first due to repay. Plan 5 balances are written off after 40 years. Ten extra years of 9% repayments make a big difference to how many graduates end up repaying in full.

The only question that matters

Overpaying a student loan only saves you money in one situation: when you would otherwise repay the loan in full. In that case, overpaying clears it sooner and cuts the total interest.

If you were never going to clear it, every pound you overpay simply reduces the amount written off at the end. You pay more, and get nothing back. Voluntary overpayments aren't refunded, even if the balance is later cancelled.

So the decision isn't really about the interest rate. It's about your likely earnings over 30 or 40 years.

An illustrative model

To show how this works, we modelled a graduate with a £50,000 balance at four starting salaries. That's roughly the cost of three years' tuition plus maintenance loans. We compared normal repayments with overpaying £200 a month for the first five years, which comes to £12,000 in total.

The model is a simplification, so treat it as an illustration, not a forecast. It assumes:

• RPI of 3% a year and salary growth of 3.5% a year.
• The Plan 2 threshold frozen at £29,385 until 2029/30 and then rising with RPI. Plan 2 interest runs on its sliding scale up to an assumed upper threshold of £52,885, which also rises with RPI after the freeze.
• The Plan 5 threshold starting at £25,000 and rising with RPI.
• No career breaks, no part-time work and no change to the rules.

All totals are in cash terms, not adjusted for inflation.

On Plan 2, the three lower earners never clear the loan. For each of them, overpaying £12,000 means paying exactly £12,000 more over their lifetime, with no benefit at all. Only the £60,000 graduate repays in full. For them, overpaying brings the end date forward five years and saves £20,136.

Notice how much interest builds up on Plan 2. The graduate starting on £45,000 repays almost £93,500 over 30 years and still has nearly £70,000 written off. That's what RPI plus up to 3% does to a balance that isn't being cleared.

Plan 5 tells a different story. With a lower threshold and 40 years of repayments, the graduates starting on £45,000 and £60,000 clear the loan comfortably, and the one starting on £35,000 very nearly does. For all three, overpaying saves money: £13,224 for the £35,000 graduate, £9,827 at £45,000 and £4,788 at £60,000. The biggest saving is for the £35,000 graduate, because overpaying tips them from just failing to clear the loan to clearing it five years early.

That middle case is also the riskiest. A few years of career break or part-time work could easily put the same graduate back into the "never clears" group, and then every overpaid pound is lost.

What the model leaves out

The value of money now. £12,000 overpaid in your twenties is £12,000 you can't put towards a house deposit, an emergency fund or a pension. A saving of £5,000 spread over 40 years may be worth less than the flexibility of having £12,000 in your twenties.

Better uses of spare cash. Pension contributions get tax relief straight away, worth 20% to 40% or more, and often an employer match too. A Lifetime ISA adds a 25% bonus towards a first home. High-interest debt costs far more than a student loan. All of these usually come first.

Rule changes. Governments regularly change student loan terms, usually to collect more. The Plan 2 threshold freeze announced in November 2025 is one example. A future change could make overpaying look better or worse in hindsight.

Your real career. Nobody's pay rises smoothly at 3.5% a year for 40 years. The model's middle cases are the ones most sensitive to what actually happens.

A practical way to decide

1. Clear expensive debt and build an emergency fund first. These come before any student loan overpayment.
2. Use your employer's pension match in full. Free money beats any loan saving.
3. If you're on Plan 2, overpay only if you're confident your earnings will stay well above £50,000 for most of your career, and you've done the first two steps. For most Plan 2 graduates the right overpayment is zero.
4. If you're on Plan 5, wait a few years. Once you have some salary history, you'll have a much better idea whether you'll clear the loan. Overpaying at 25 on a hunch is a bet; overpaying at 32 with a settled career is a decision.
5. Keep the money liquid until you're sure. Saving the amount you'd overpay in an ISA keeps the option open. If you later decide to clear the loan, you can, and if you don't, the money is still yours.

If you do decide to overpay

Overpayments are made through your Student Loans Company online account, by debit card or bank transfer, either as one-off amounts or as a regular payment. A few practical points:

• Check where the money goes. If you hold more than one loan, for example Plan 2 and a Postgraduate Loan, you can choose which one an overpayment is applied to. The one with the higher interest rate is usually the better target, as long as you expect to clear it.
• Keep your normal repayments running. Overpayments are on top of the payroll deductions. They don't pause them, and payroll will keep deducting until the Student Loans Company tells HMRC your balance is nearly cleared.
• Watch the final year. When you're close to paying off the loan, consider switching to Direct Debit repayments. That helps avoid over-deductions through payroll that you'd then need to reclaim.
• Keep records. Check your annual statement to make sure every overpayment has been credited to the right loan.

To see what you're repaying now, use the Plan 5 calculator or, if you also have a Postgraduate Loan, the Plan 2 and Postgraduate Loan calculator. Salary sacrifice also lowers the earnings your repayments are based on, which our salary sacrifice guide explains.