Investors' Chronicle Student Loans: What every graduate needs to know
Mar 24, 2026
A clear tour of the UK student loan system, covering Plan 1, Plan 2 and Plan 5 and why Plan 2 can be especially harsh. Discussion of frozen repayment thresholds and how interest rules can make balances grow. Examination of why women often carry a heavier loan burden. Practical talk on when overpaying or investing instead might matter for your long term finances.
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Why Plan 2 Feels So Punishing
- Plan 2 loans (2012–2022) carry RPI plus 3% interest, a ~£28k repayment threshold, 9% of income repayments and a 30-year term.
- High interest plus income-linked repayments often mean balances grow despite monthly payments, reducing take-home pay and mortgage affordability.
Plan 5 Trades Interest For Longer Repayments
- Plan 5 (introduced 2023) lowers interest to RPI only but reduces the repayment threshold to £25k and extends the term to 40 years.
- That makes loans cheaper to index but hits lower and mid earners who pay sooner and for much longer.
Threshold Freeze Is A Stealthy Cost Increase
- Freezing the repayment threshold (increase to ~£29k then frozen) is a stealthy way to extract more money because inflation raises nominal wages into the repayment band.
- UBS/Investors' Chronicle calculations suggest this could cost students up to ~£10,000 more over a loan cycle.