Last updated 6 November 2026 · Examples use 2026/27 rules.
The Plan 2 student loan threshold freeze keeps the annual repayment threshold at £29,385 until April 2030 under current plans. You repay 9% of earnings above it. Whether to overpay or save depends on how much you’re likely to repay before write-off and when you’ll need the cash.
When my husband and I arrived in the UK in 2008, we had £1,000. We saved into higher-interest accounts and ISAs while living on one salary at a time, reaching our £36,000 house deposit by 2011. Having a specific use for the money made our choices clearer. I describe that approach in Good Salary, Empty Account.
What the Plan 2 threshold freeze means for your payslip
The threshold rose to £29,385 in April 2026. The freeze announced at Autumn Budget 2025 keeps it at that level for 2027/28, 2028/29 and 2029/30. Check your plan in your Student Loans Company account, especially if you studied in more than one period or have another loan.
Once your earnings are above the threshold, each extra £1,000 of relevant pay adds about £90 in Plan 2 repayments, before payroll rounding. That’s the effect of the repayment formula. The extra cost of the freeze is the difference between repayments at the frozen threshold and repayments at whatever higher threshold would otherwise have applied. For illustration, a threshold £500 higher would mean £45 less in annual repayments for someone above both thresholds.
Interest is a separate calculation. Plan 2 interest can depend on your earnings and circumstances, and a temporary cap applies under the 2026 regulations. Check your account for the interest rate actually applied before modelling an overpayment.
Worked example: what you keep from a £3,000 pay rise
These examples assume a steady salary, standard employee National Insurance and Income Tax rates for England, Wales or Northern Ireland. They exclude pension deductions, other loans and payroll rounding. Scottish Income Tax rates differ.
| On the extra £3,000 | £35,000 to £38,000 | £52,000 to £55,000 |
|---|---|---|
| Income Tax | £600 | £1,200 |
| Employee National Insurance | £240 | £60 |
| Plan 2 deduction | £270 | £270 |
| Total extra deductions | £1,110 | £1,530 |
| Extra take-home pay | £1,890 a year (about £157.50 a month) | £1,470 a year (about £122.50 a month) |
Use my Student Loan Repayment Calculator and monthly budgeting guide to turn an annual pay rise into a monthly figure. PAYE deductions are based on each pay period, so a bonus month can look different.
Overpay your Plan 2 loan or keep saving?
1. Check when your loan would be written off
Plan 2 balances are generally written off 30 years after the April you were first due to repay. If a voluntary payment leaves your future compulsory deductions unchanged until write-off, it reduces what gets written off and gives you no cash saving. If it brings forward the date you repay in full, it can reduce what you pay overall.
Check your balance, interest rate and write-off date. Run a lower-earnings scenario as well as one with pay rises. A small balance or a high salary alone tells you little without knowing how long you have left and what you’re likely to earn.
2. Compare what each option does for you
| Option | Potential benefit | Access and trade-offs |
|---|---|---|
| Voluntary Plan 2 repayment | Can reduce lifetime repayments if you clear the loan sooner. | Voluntary payments are non-refundable. A partial payment usually leaves regular PAYE deductions unchanged. |
| Cash Lifetime ISA | Eligible contributions earn a government bonus under current rules. | Check first-home eligibility, the waiting period, the price cap and withdrawal charges. |
| Cash ISA | Tax-free interest at the account’s fixed or variable rate. | Access depends on the account. Check notice periods and fixed-account withdrawal charges. |
If you’re saving for a home, compare the Lifetime ISA first-home rules with the flexibility of a Cash ISA. The Cash ISA vs Premium Bonds guide explains the options for accessible savings, and my Savings Tax Rise 2027 guide shows how ordinary savings interest is taxed.
3. Check affordability before using your deposit cash
If you’re close to clearing the loan, ask SLC for a settlement figure and check whether paying it off fits your budget. If you plan to buy soon, ask your lender or broker how it treats student loan deductions. Paying off the loan may improve monthly cash flow once deductions stop, but it also leaves you with a smaller deposit. See my mortgage rates guide for the cost side of that comparison.
When you can ask SLC for a refund
If overtime or a bonus triggered PAYE deductions but your annual income ended below the repayment threshold, you can generally request a refund once SLC has the annual income data. You can also check if you started repaying too early, were put on the wrong plan or paid more than your remaining balance. See GOV.UK’s refund guidance.
If you’re in your final repayment year, ask SLC about switching to Direct Debit to reduce the risk of deductions continuing after the loan is cleared. Voluntary overpayments follow separate rules and can’t be refunded.
What I’d do first
I’d check the write-off date and model future repayments before sending extra money. Then I’d decide how much I need to keep accessible for emergencies and my next goal. My Emergency Fund Calculator and free 7-Day Financial Reset Kit can help. The Sinking Funds & Savings Pots planner can help track a separate deposit pot.
Plan 2 student loan freeze: key takeaways
- Check your repayment plan before using the £29,385 threshold.
- Compare lifetime repayments under different earnings scenarios before overpaying.
- Keep deposit and emergency money accessible on your timeline.
- Check refund eligibility after a year of variable pay.
Plan 2 student loan FAQs
When is the Plan 2 threshold frozen until?
It is due to remain at £29,385 until April 2030. Check government guidance if you’re projecting repayments beyond that date.
Does a voluntary overpayment reduce my next payslip deduction?
A partial payment usually leaves the deduction unchanged because PAYE uses your earnings. If you settle the loan, confirm when SLC and payroll expect deductions to stop.
Can I reclaim repayments after a bonus?
If your annual income was below the threshold, you can usually request a refund once the tax year has ended and SLC has the relevant data. Check the official refund guidance for your circumstances.
If a first home is your priority, see how we saved a £36,000 deposit on one salary for a way to split your deposit and buying costs. When you’re closer to applying, use my mortgage paperwork checklist to prepare your statements and income evidence.
Sources
- Department for Education: Plan 2 threshold freeze
- GOV.UK repayment, interest and write-off guidance
- 2026 interest-cap regulations
- Income Tax rates and National Insurance rates
I’m not a financial adviser. This article shares general information and my savings experience. It does not constitute regulated financial or debt advice.