The Plan 2 student loan repayment threshold is £29,385 for the 2026-27 tax year, up from £28,470 the year before, and it has been frozen at that figure until the end of the 2029-30 tax year [1][2]. Above that threshold, an employer must deduct 9% of a borrower's earnings through payroll and hand it to HMRC alongside tax and National Insurance [3].
For payroll teams, Plan 2 is the most common of the undergraduate loan plans, because it covers everyone in England and Wales who took out a loan for a course starting between 2012 and 2023. Getting its threshold, its rate and its start and stop notices right is a routine but unforgiving part of every payrun.
This article sets out the exact Plan 2 threshold in weekly, monthly and annual terms, explains who repays on Plan 2, walks through the deduction calculation with worked figures, distinguishes Plan 2 from the other plans an employer will meet, and covers the SL1 and SL2 notices that switch deductions on and off.
Key takeaways
- The Plan 2 threshold is £29,385 a year for 2026-27, equal to £2,448.75 a month or £564.71 a week.
- Repayments are 9% of earnings above the threshold, rounded down to the nearest whole pound.
- The threshold is frozen at £29,385 until the end of the 2029-30 tax year.
- Plan 2 covers post-2012 undergraduate borrowers in England and Wales; newer English students from the 2023 intake repay on Plan 5 instead.
- Employers start and stop Plan 2 deductions only on receipt of an SL1 or SL2 notice from HMRC, never on an employee's word alone.
What the Plan 2 threshold is for 2026-27
A student loan threshold is the level of earnings below which no repayment is due. On Plan 2, a borrower repays nothing on the first £29,385 they earn in the 2026-27 tax year, and 9% on everything above it [1][3]. Because payroll runs weekly or monthly rather than annually, the annual threshold is divided across the pay periods in the year, and the table below shows the figures a payroll uses in practice.
| Pay frequency | Plan 2 threshold 2026-27 |
|---|---|
| Annual | £29,385 [[1]](https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2026-to-2027) |
| Monthly (÷12) | £2,448.75 [[4]](https://www.gov.uk/government/publications/sl3-student-loan-deduction-tables/2026-to-2027-student-and-postgraduate-loan-deduction-tables) |
| Weekly (÷52) | £564.71 [[4]](https://www.gov.uk/government/publications/sl3-student-loan-deduction-tables/2026-to-2027-student-and-postgraduate-loan-deduction-tables) |
The threshold is applied to the earnings in each individual pay period, not to a running year-to-date total, so a bonus month can trigger a larger deduction that a quieter month would not [3]. This period-by-period approach is a defining feature of payroll student loan collection and one that catches out employers who try to reconcile deductions against an annual figure.
The freeze to 2029-30
The Plan 2 threshold usually rises each April in line with a measure of inflation, but that link has been suspended. Following the Autumn Budget 2025, the Plan 2 repayment threshold has been frozen at £29,385 for three years, from 2026-27 to the end of the 2029-30 tax year [2]. In practice a frozen threshold means that as wages rise, more borrowers cross it and existing borrowers repay slightly more, because the point at which the 9% bites no longer moves with pay. Payroll software that reads the threshold from a maintained rate table absorbs the freeze automatically, while a manually keyed figure risks being uprated in error.
Who repays on Plan 2
Plan 2 is defined by when and where the borrower studied, not by how much they earn. It applies to students in England and Wales who took out an income-contingent loan for a course that started on or after 1 September 2012 [1]. That makes it the plan a payroll encounters most often, because it covers more than a decade of graduates now in the workforce.
An employer does not decide which plan applies. HMRC tells the employer the plan type on the SL1 start notice, and the employer applies whatever plan the notice specifies [3]. Where a new starter declares a student loan but the plan type is unknown and no notice has yet arrived, the employer defaults to the lowest threshold, which produces the safest and most cautious deduction until HMRC confirms the correct plan. Handling this correctly on day one is part of why most employers run new-starter checks through dedicated payroll software rather than manual lookups.
The overlap with Plan 5
Plan 2 is no longer the newest undergraduate plan. English students who started their course on or after 1 August 2023 repay on Plan 5, not Plan 2, and Plan 5 began collecting repayments for the first time from 6 April 2026 with its own threshold of £25,000 [1][2]. An employer may therefore have two undergraduate borrowers side by side, one on Plan 2 at £29,385 and one on Plan 5 at £25,000, and the payroll must apply each threshold to the right person. The SL1 notice is again the authority for which plan applies.
How the Plan 2 deduction is calculated
The calculation is a single formula applied to each pay period. The employer takes the earnings in the period, subtracts the period threshold, multiplies the excess by 9%, and rounds the result down to the nearest whole pound [3][4]. Rounding is always down, never up or to the nearest penny.
Consider an employee paid £3,000 a month with a Plan 2 loan. The monthly threshold is £2,448.75, so the excess is £551.25, and 9% of that is £49.61, which rounds down to a deduction of £49 for the month [4]. The same employee in a month with a £1,000 bonus would see the excess rise to £1,551.25, giving 9% of £139.61 and a deduction of £139, because the extra pay all sits above the threshold.
| Monthly earnings | Excess over £2,448.75 | 9% before rounding | Deduction |
|---|---|---|---|
| £2,600 | £151.25 | £13.61 | £13 |
| £3,000 | £551.25 | £49.61 | £49 |
| £4,000 | £1,551.25 | £139.61 | £139 |
Student loan deductions are reported to HMRC on the Full Payment Submission each time the payroll runs, so the collected amounts flow to HMRC through Real Time Information alongside tax and National Insurance [3]. Software that holds the HMRC Recognised badge builds the deduction into the Full Payment Submission automatically, which removes a common source of manual error for in-house teams. Accountants applying this across many clients typically manage the plan types and notices through a payroll bureau platform so each client's deductions reconcile cleanly at year end.
Plan 2 next to the other plans
An employer rarely sees Plan 2 in isolation. Five loan types can appear on a payroll, each with its own threshold, and the differences are large enough that applying the wrong plan produces a materially wrong deduction. The table sets out the 2026-27 thresholds side by side.
| Plan | Who repays on it | Annual threshold 2026-27 | Rate |
|---|---|---|---|
| Plan 1 | Pre-2012 English and Welsh, Scottish, Northern Irish | £26,900 [[1]](https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2026-to-2027) | 9% |
| Plan 2 | Post-2012 English and Welsh undergraduates | £29,385 [[1]](https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2026-to-2027) | 9% |
| Plan 4 | Scottish borrowers post-2021 | £33,795 [[1]](https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2026-to-2027) | 9% |
| Plan 5 | English students from the 2023 intake | £25,000 [[2]](https://commonslibrary.parliament.uk/research-briefings/cbp-10654/) | 9% |
| Postgraduate Loan | Master's and doctoral borrowers | £21,000 [[2]](https://commonslibrary.parliament.uk/research-briefings/cbp-10654/) | 6% |
Two points on the table are worth flagging. There is no Plan 3, a gap in the numbering that regularly confuses payroll teams, so a borrower is never on Plan 3 [1]. And the Postgraduate Loan is different in kind: it is deducted at 6%, not 9%, and it runs alongside an undergraduate plan rather than replacing it, so a borrower can repay both at once [3].
When an employee has a postgraduate loan too
Where a worker has both a Plan 2 loan and a Postgraduate Loan, the employer applies both deductions in the same pay period: 9% above the Plan 2 threshold and 6% above the Postgraduate Loan threshold [3]. The two are calculated independently against their own thresholds, and both are reported through the Full Payment Submission. This is a frequent scenario for employees who went straight from an undergraduate degree into a funded Master's, and a payroll system must be able to run more than one loan type on a single employee at the same time. Developers embedding UK payroll into their own products can see how these concurrent deductions are handled through the Moonworkers payroll API.
What Plan 2 repayments add up to across a year
Because the deduction is calculated per pay period, the annual total a borrower repays depends on their earnings pattern as well as their salary. For a borrower on a steady monthly salary, the yearly figure is straightforward: take the salary, subtract the £29,385 threshold, and apply 9% to the excess. The table shows the approximate annual Plan 2 repayment at three salary levels for 2026-27 [3].
| Annual salary | Earnings above £29,385 | Approximate annual repayment |
|---|---|---|
| £32,000 | £2,615 | around £235 |
| £40,000 | £10,615 | around £955 |
| £55,000 | £25,615 | around £2,305 |
The figures explain why a frozen threshold matters. As pay rises with inflation while £29,385 stays fixed, the slice of earnings above the threshold grows every year, and the 9% is charged on a larger base [2]. A pay rise that merely keeps pace with prices still increases the Plan 2 deduction in cash terms. For employers running payroll for a mix of graduate and non-graduate staff, this is one more reason the deduction has to be recalculated each period rather than assumed from last year, a task most small businesses hand to payroll software for SMEs.
Starting and stopping Plan 2 deductions
An employer never begins or ends a student loan deduction on an employee's say-so. Deductions start only when HMRC issues an SL1 start notice specifying the plan type, and they stop only when HMRC issues an SL2 stop notice [3]. The one exception is a new starter who declares an existing loan on their starter information, which prompts the employer to begin deductions pending the formal notice, again defaulting to the lowest threshold if the plan is unclear.
Stopping is the more sensitive direction. An employer must keep deducting until an SL2 arrives, even if the employee insists their loan is nearly repaid, because the final stages of repayment are managed by HMRC and the Student Loans Company to avoid overpayment, and acting early can leave the employee short-changed or the employer out of step with HMRC [3]. The notices are the single source of truth, and a payroll process built around them keeps the employer compliant without having to arbitrate an employee's own balance.
Off-payroll workers and IR35
One category sits outside payroll student loan collection entirely. For a worker engaged off-payroll under the IR35 rules, student loan repayments are not collected through the client's payroll [3]. The deemed employment calculation for an off-payroll worker covers income tax and National Insurance, but the worker settles any student loan through self-assessment instead. Hirers new to off-payroll working often assume the loan flows through payroll like everything else, and correcting that assumption early avoids an incorrect deduction. Businesses handling this alongside standard payroll can find the boundaries set out in the Moonworkers guide to student loan deductions.
Conclusion
The Plan 2 threshold of £29,385 is a small number that drives a large volume of routine payroll work. It applies per pay period, it carries a flat 9% above it, and it will not move until the end of the 2029-30 tax year, which means a growing share of graduates will cross it as wages rise while the line stays still. For an employer, the mechanics are simple in isolation but demanding at scale, because every borrower must be matched to the right plan, the right threshold and the right notice.
The safeguard against error is process rather than memory. A payroll that reads thresholds from a maintained rate table, applies the deduction per period, rounds down to the whole pound, and starts or stops only on an SL1 or SL2 notice will handle Plan 2 correctly through the freeze and beyond. As Plan 5 grows alongside Plan 2 and the two thresholds diverge, that discipline becomes the difference between a clean year-end and a reconciliation exercise.
Frequently asked questions
What is the Plan 2 student loan threshold for 2026-27?
The Plan 2 threshold is £29,385 a year for the 2026-27 tax year, which works out at £2,448.75 a month or £564.71 a week [1][4]. A borrower repays 9% of any earnings above the threshold in each pay period, rounded down to the nearest whole pound.
Is the Plan 2 threshold going to rise?
No, not for several years. The Plan 2 threshold has been frozen at £29,385 from 2026-27 until the end of the 2029-30 tax year, following the Autumn Budget 2025 [2]. Because the threshold is frozen while wages tend to rise, more borrowers will cross it and repay over that period.
How does an employer know which student loan plan to apply?
HMRC tells the employer the plan type on the SL1 start notice, and the employer applies whatever plan the notice specifies [3]. If a new starter declares a loan but the plan type is not yet known, the employer defaults to the lowest threshold until HMRC confirms the correct plan.
Can an employee be on both Plan 2 and a postgraduate loan?
Yes. A borrower can repay a Plan 2 undergraduate loan and a Postgraduate Loan at the same time, with 9% deducted above the £29,385 Plan 2 threshold and 6% above the separate £21,000 postgraduate threshold [3][2]. The two deductions are calculated independently and both are reported to HMRC through the Full Payment Submission.
Image prompt for Imagen (also in frontmatter)
Documentary-style photograph, a payroll clerk at a tidy desk in a small Leeds office cross-checking a printed HMRC student loan notice against a laptop payroll screen, a coffee mug and a ring-bound folder nearby, soft daylight through a north-facing window on a weekday morning, muted palette of warm grey, oak, paper white and dark green, a brick city-centre building visible through the window, off-centre composition with the desk in the right two-thirds, shot on a Leica Q3 at 28mm f/2.8, photojournalism, 35mm film grain, no AI artefacts, no warped hands, no warped text, landscape orientation 16:9.
