Plan 1 vs Plan 2 Student Loans: Which Actually Costs More?
We calculated the true lifetime cost of Plan 1 vs Plan 2 student loans. The results will change how you think about overpaying.
Plan 1 or Plan 2? It's the lottery of when you went to university. But which one actually costs more over your lifetime? We ran the numbers using our UK Salary Calculator, and the results might surprise you.
The Key Differences at a Glance
| Feature | Plan 1 (Pre-2012) | Plan 2 (Post-2012) |
|---|---|---|
| Repayment threshold | £24,990 | £27,295 |
| Interest rate | Lower of RPI or Bank Rate + 1% | RPI + up to 3% |
| Current interest (2024) | ~6.25% | Up to 7.9% |
| Write-off period | 25 years (or age 65) | 30 years |
| Typical balance | £15,000-£25,000 | £40,000-£60,000 |
The fundamental difference: Plan 1 has lower debt but lower threshold. Plan 2 has higher debt but higher threshold and often gets written off.
Monthly Repayments Compared
Using our UK Salary Calculator, here's what you actually pay each month:
At £30,000 Salary
| Plan | Monthly Repayment | Annual Repayment |
|---|---|---|
| Plan 1 | £37.58 | £450.90 |
| Plan 2 | £20.28 | £243.45 |
Plan 2 pays £17.30/month less at this salary.
Calculate your exact repayment →
At £40,000 Salary
| Plan | Monthly Repayment | Annual Repayment |
|---|---|---|
| Plan 1 | £112.58 | £1,350.90 |
| Plan 2 | £95.28 | £1,143.45 |
Plan 2 pays £17.30/month less - the gap stays constant.
At £50,000 Salary
| Plan | Monthly Repayment | Annual Repayment |
|---|---|---|
| Plan 1 | £187.58 | £2,250.90 |
| Plan 2 | £170.28 | £2,043.45 |
At £75,000 Salary
| Plan | Monthly Repayment | Annual Repayment |
|---|---|---|
| Plan 1 | £375.08 | £4,500.90 |
| Plan 2 | £357.78 | £4,293.45 |
i The £17.30/month difference comes from the threshold gap: (£27,295 - £24,990) × 9% ÷ 12 = £17.30. This is constant regardless of salary.
The Lifetime Cost: This Is Where It Gets Interesting
Monthly payments tell only part of the story. What matters is total amount repaid over your lifetime.
Scenario 1: £35,000 Starting Salary, 3% Annual Raises
Plan 1 (£20,000 balance)
| Year | Salary | Annual Repayment | Remaining Balance |
|---|---|---|---|
| 1 | £35,000 | £900 | £20,350 |
| 5 | £39,400 | £1,296 | £21,200 |
| 10 | £45,700 | £1,863 | £18,900 |
| 15 | £53,000 | £2,520 | £10,200 |
| 18 | £57,900 | £2,961 | £0 (Paid off) |
Total repaid: £38,400 over 18 years
Plan 2 (£50,000 balance)
| Year | Salary | Annual Repayment | Remaining Balance |
|---|---|---|---|
| 1 | £35,000 | £693 | £53,500 |
| 5 | £39,400 | £1,089 | £62,800 |
| 10 | £45,700 | £1,656 | £74,100 |
| 20 | £61,400 | £3,069 | £78,200 |
| 30 | £82,500 | £4,968 | Written off |
Total repaid: £68,500 over 30 years (then £78,200 written off)
Scenario 2: £50,000 Starting Salary (High Earner)
Plan 1 (£20,000 balance)
- Paid off in: 9 years
- Total repaid: £24,800
Plan 2 (£50,000 balance)
- Paid off in: 18 years
- Total repaid: £72,400
For high earners, Plan 2 costs significantly more because you actually pay it off rather than having it written off.
Scenario 3: £28,000 Salary, Minimal Growth
Plan 1 (£20,000 balance)
- Monthly payment: £22.58
- After 25 years: Balance written off
- Total repaid: ~£6,800
Plan 2 (£50,000 balance)
- Monthly payment: £5.28
- After 30 years: Balance written off
- Total repaid: ~£1,900
For low earners, Plan 2 is actually cheaper because you pay less before write-off.
Should You Overpay? The Maths
This is where most advice gets it wrong. Let's calculate properly.
Plan 1: Overpaying Often Makes Sense
If you're going to pay off your Plan 1 loan anyway, overpaying saves you interest.
Example: £15,000 balance, £45,000 salary, 6.25% interest
| Strategy | Years to Pay Off | Total Repaid |
|---|---|---|
| Minimum payments | 9 years | £18,200 |
| +£200/month extra | 5 years | £16,100 |
Saving: £2,100 by overpaying.
Calculate your payoff timeline →
Plan 2: Overpaying Rarely Makes Sense
Most Plan 2 borrowers will never pay off their loan. The median graduate salary means most balances get written off.
The key question: Will you earn enough to pay it off in 30 years?
Using our calculator, we found the approximate salary needed to fully repay:
| Starting Balance | Salary Needed (to clear in 30 years) |
|---|---|
| £40,000 | ~£38,000 average lifetime |
| £50,000 | ~£45,000 average lifetime |
| £60,000 | ~£52,000 average lifetime |
If you won't hit these averages, every pound you overpay is a pound you're giving away for free.
! Never overpay Plan 2 unless: You're certain you'll earn enough to pay it off anyway AND you have no other debts AND you've maxed your pension contributions. Otherwise, you're literally giving money away.
The Real Impact on Your Take-Home Pay
Let's see how student loans affect what you actually receive each month.
Using our UK Salary Calculator:
£35,000 Salary Breakdown
| Component | No Loan | Plan 1 | Plan 2 |
|---|---|---|---|
| Gross | £35,000 | £35,000 | £35,000 |
| Income Tax | -£4,486 | -£4,486 | -£4,486 |
| National Insurance | -£1,794 | -£1,794 | -£1,794 |
| Student Loan | £0 | -£901 | -£694 |
| Annual Take-Home | £28,720 | £27,819 | £28,026 |
| Monthly Take-Home | £2,393 | £2,318 | £2,336 |
£50,000 Salary Breakdown
| Component | No Loan | Plan 1 | Plan 2 |
|---|---|---|---|
| Gross | £50,000 | £50,000 | £50,000 |
| Income Tax | -£7,486 | -£7,486 | -£7,486 |
| National Insurance | -£2,994 | -£2,994 | -£2,994 |
| Student Loan | £0 | -£2,251 | -£2,043 |
| Annual Take-Home | £39,520 | £37,269 | £37,477 |
| Monthly Take-Home | £3,293 | £3,106 | £3,123 |
See your exact take-home with student loan →
Plan 1 vs Plan 2: Who Wins?
Plan 1 is "better" if:
- You're a high earner (you'll pay less total)
- You started with a smaller balance
- You want the psychological benefit of being debt-free
Plan 2 is "better" if:
- You're a low-to-middle earner (more gets written off)
- You'd rather have lower monthly payments now
- You understand it's essentially a graduate tax, not real debt
What About Plan 4 and Plan 5?
Plan 4 (Scotland, 1998-2017)
- Threshold: £27,660
- Interest: Same as Plan 1
- Write-off: 30 years (or age 65)
- Effectively similar to Plan 1 but with higher threshold
Plan 5 (Post-2023)
- Threshold: £25,000
- Interest: RPI only (lower than Plan 2)
- Write-off: 40 years
- Lower interest but much longer repayment period
Calculate Your Personal Situation
Everyone's situation is different. Use our UK Salary Calculator to:
- See your exact monthly student loan deduction
- Calculate take-home pay with all deductions
- Compare different salary scenarios
- Plan for pay rises and their impact
Calculate your own situation:
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| If You're On... | Best Strategy |
|---|---|
| Plan 1, high earner | Consider overpaying to clear faster |
| Plan 1, low earner | Minimum payments, likely written off |
| Plan 2, any salary | Almost never overpay - it's a graduate tax |
| Plan 4 | Similar to Plan 1 |
| Plan 5 | Too early to tell, but likely don't overpay |
The biggest mistake? Treating Plan 2 like real debt. For most graduates, it's a 9% tax on earnings above £27,295 for 30 years - nothing more. Understanding this changes everything about how you should manage your money.
Focus your extra cash on:
- Pension contributions (free money from employer match)
- Emergency fund
- High-interest debt (credit cards, etc.)
- ISA investments
Your student loan should be last on the list.