Student Loan Plan 5 explained

What Plan 5 is

Student Loan Plan 5 is the newest undergraduate repayment plan for students in England and Wales. It applies to students who started higher education courses from August 2023 onwards under the reformed student finance system.

Plan 5 replaces Plan 2 for new borrowers. If you took out a student loan before August 2023, you remain on Plan 2 (or Plan 1 or Plan 4, depending on when and where you studied). Plan 5 only applies to newer borrowers.

Why Plan 5 matters now

The first Plan 5 borrowers will begin making repayments from April 2026. That means this is the first tax year where Plan 5 deductions will appear on payslips for graduates who started courses in September 2023 and entered the workforce by early 2026.

For anyone starting their career in 2025 or 2026 with a Plan 5 loan, understanding how it affects take-home pay is essential for realistic budgeting.

How Plan 5 differs from Plan 2

The most important difference for take-home pay planning is the repayment threshold.

Repayment threshold

Plan 5 has a lower repayment threshold than Plan 2. That means repayments begin at a lower salary level, so the student loan starts dragging on take-home pay earlier.

For someone earning GBP 30,000, the difference between Plan 2 and Plan 5 can be the difference between no repayment and a visible monthly deduction.

Repayment rate

Both Plan 2 and Plan 5 use a 9 percent repayment rate on income above the threshold. The rate is the same, but because Plan 5's threshold is lower, the total annual deduction at the same salary is higher under Plan 5.

Loan term

Plan 5 loans are written off after 40 years, compared with 30 years for Plan 2. This means repayments continue for longer, which affects the total amount repaid over a career even though it does not directly change take-home pay calculations.

Interest rate

Plan 5 loans are charged interest at RPI only (no additional margin), which is different from Plan 2's graduated interest structure. While this does not affect payroll deductions directly, it changes the total cost of the loan over time.

Who is on Plan 5

You are on Plan 5 if:

• you are an undergraduate student in England or Wales
• you started your course on or after 1 August 2023
• you took out a student loan through Student Finance England or Student Finance Wales under the new system

If you are unsure which plan you are on, the most reliable check is through the Student Loans Company or the GOV.UK repayment plan guidance. Do not guess, because using the wrong plan in a calculator will produce an incorrect take-home estimate.

How Plan 5 repayments are calculated

Plan 5 repayments work the same way as other income-contingent plans:

• no repayment is due if earnings are below the threshold
• once earnings exceed the threshold, 9 percent of income above the threshold is deducted
• deductions are made through payroll, so they appear on your payslip alongside tax and National Insurance

The deduction is calculated per pay period. In a monthly-paid job, the annual threshold is divided by 12 to determine the monthly threshold.

How Plan 5 affects take-home pay at different salary levels

At GBP 25,000

With Plan 5's lower threshold, repayments may already be active at this salary level. The monthly deduction is modest but noticeable when combined with income tax and National Insurance on a relatively tight budget.

At GBP 30,000

The Plan 5 deduction becomes more visible. At this salary, the difference between having a student loan and not having one starts to feel significant in monthly budgeting terms.

At GBP 35,000

Plan 5 deductions are now clearly material. The combined effect of income tax, National Insurance, and student loan repayment means the gap between gross and net pay is wider than many graduates expect.

At GBP 50,000

Plan 5 deductions are substantial at this level. The total annual repayment is several thousand pounds, and the monthly effect is large enough to influence decisions about salary sacrifice, pension contributions, and whether to accept a particular job offer.

Plan 5 and salary sacrifice

Salary sacrifice reduces the pay figure used to calculate student loan deductions. This means redirecting income to pension through salary sacrifice can reduce Plan 5 repayments as well as tax and National Insurance.

At lower salary levels where Plan 5 deductions are already tight, salary sacrifice may not be practical if it reduces cash flow too much. But at higher salaries, the triple saving (tax, NI, and student loan) makes salary sacrifice particularly efficient for Plan 5 borrowers.

Plan 5 and bonuses

A bonus is treated as earnings for student loan purposes. If a bonus pushes your earnings above the Plan 5 threshold in a particular pay period, or increases the amount above the threshold, additional student loan deductions will apply.

This is why a bonus can feel even smaller than expected when a student loan is in play. The 9 percent repayment rate comes on top of income tax and National Insurance, reducing the net bonus further.

Plan 5 and pay rises

A pay rise increases the amount above the repayment threshold, which increases the annual student loan deduction. The practical effect is that Plan 5 borrowers keep less of a raise than someone without a student loan.

For example, a GBP 3,000 raise results in GBP 270 of additional Plan 5 deductions (9 percent of GBP 3,000), on top of the additional tax and NI. This does not make the raise worthless, but it does mean the monthly improvement is smaller than the gross change suggests.

Common misunderstandings

"Plan 5 is just Plan 2 with a different name"

No. Plan 5 has a lower repayment threshold, different interest terms, and a longer repayment period. These differences materially affect both take-home pay and total lifetime cost.

"I can choose which plan I am on"

No. Your plan is determined by when and where you started your course. You cannot switch between plans.

"Paying off my student loan faster will always save money"

Not necessarily. With Plan 5's RPI-only interest rate and 40-year write-off, some borrowers will never repay the full balance. Voluntary overpayments only make sense if you are likely to repay in full before the write-off date, which depends on your salary trajectory.

"My student loan does not affect how I should evaluate a job offer"

It does. Two offers with the same gross salary produce the same student loan deduction. But if one offer has more salary sacrifice or pension contribution, the effective student loan cost can differ.

How to use PayPath calculators with Plan 5

Select Plan 5 in the student loan dropdown when using any PayPath calculator. This ensures the lower threshold is applied to your estimate. Key calculators to use:

• Take-home pay calculator for your baseline take-home with Plan 5
• Pay rise calculator to see how much of a raise you keep after Plan 5 deductions
• Bonus tax calculator to understand the net value of a bonus with Plan 5 in play
• Salary sacrifice calculator to model the triple saving from pension contributions

Best next step

Confirm which plan you are on through the Student Loans Company or GOV.UK, then run the take-home pay calculator with Plan 5 selected to see your realistic take-home figure. If budgeting is tight, this number matters more than the headline salary.