Merryn Talks Money The 51% Graduate Tax
Feb 25, 2026
John Stepek, senior reporter and author of the Money Distilled newsletter, explains why Plan 2 and new Plan 5 student loans leave many grads feeling squeezed. He explores how repayments, tax and NI can push marginal rates above 50%. Short, sharp takes on interest rules, frozen thresholds, life decisions and what policy tweaks might help.
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Plan Two Feels Like A 51% Tax
- Plan 2 student loans create an effective extra marginal tax of about 9 percentage points, pushing many graduates' total marginal rate to ~51%.
- Graduates from 2012–2022 in their 30s now feel this as a lasting burden during peak earning and family-forming years.
Big Balances Create Psychological And Financial Strain
- Annual statements showing large outstanding balances create a psychological burden; many graduates feel personal failure despite paying year-to-year.
- High interest can leave balances unchanged or larger even after a year of repayments.
Longer Terms And RPI Make Repayment Much Worse
- Plan 5 extends repayment to 40 years and uses RPI interest, meaning far more graduates will fully repay and pay higher amounts over time.
- Plan 2 already scales interest with income (RPI up to RPI+3), making it highly progressive and punitive.