Strategic guide for Plan 5 student loans (post-2023 starters). RPI-only rates, 40-year terms, and when overpayment makes sense.
If you started university in England in September 2023 or later, you're on Plan 5. This is the newest student loan plan, introduced with significant changes from the Plan 2 system that preceded it. On the surface, Plan 5 looks more borrower-friendly with dramatically lower interest rates (RPI only, instead of RPI+3%). But look closer and you'll see the trade-off: you'll be repaying for 40 years instead of 30, and the threshold is £2,295 lower, meaning repayments start earlier.
The crucial question for Plan 5 borrowers is whether these changes make you better or worse off than Plan 2 borrowers. The answer isn't straightforward. It depends entirely on your career trajectory and lifetime earnings. For high earners who would have repaid Plan 2 in full anyway, Plan 5's lower interest is beneficial. You'll pay less total. For low-to-moderate earners who would have had Plan 2 written off, Plan 5's longer repayment period means you pay more over time despite the lower interest rate.
Understanding Plan 5's specific mechanics helps you optimize your strategy. Unlike Plan 2 where overpayment almost never makes sense, Plan 5 creates scenarios where early overpayment might be rational for certain earners. The lower interest rate means your payments make more progress against the balance, particularly if you're a consistent mid-range earner.
But the 40-year write-off hanging over everything still means most borrowers should focus on other financial priorities rather than aggressively clearing student debt.
Plan 5 applies to anyone starting undergraduate study in England from August 2023 onwards. If you started your course in the 2023/24 academic year or later, you're on Plan 5.
These changes were politically presented as making loans "fairer" and reducing the burden on graduates. The reality is more complex. The lower interest helps those who repay in full. The longer write-off period and lower threshold increase what most people pay over their lifetime.
The most significant change from Plan 2 is the interest rate structure. Plan 5 charges RPI only, regardless of your income. With RPI currently around 3-4%, Plan 5 interest is approximately 3% lower than Plan 2's maximum rate.
This is the critical difference. Plan 5 borrowers at middle-income levels make real progress against their balance where Plan 2 borrowers see their balance grow or stagnate.
Plan 5's lower interest means consistent middle and upper-middle earners make meaningful progress toward reducing their balance throughout their careers. Plan 2 borrowers at the same income levels often see balances remain high or grow for 15-20 years.
Plan 5's threshold is £25,000, compared to Plan 2's £27,295. This £2,295 difference means Plan 5 borrowers start repaying earlier in their careers and pay more at every income level.
At every income level, Plan 5 borrowers pay £206-£207 more annually than Plan 2 borrowers (9% of the £2,295 threshold difference). This compounds over 40 years.
For someone earning £35,000 consistently over 40 years, the threshold difference alone means paying approximately £8,280 more in total (£207 × 40 years) compared to Plan 2. The lower interest reduces what you pay overall, but the lower threshold increases it. Which effect dominates depends on your specific income trajectory.
Many graduates spend their first 2-5 years earning between £22,000 and £28,000. On Plan 2, much of this period is below threshold (zero payments). On Plan 5, you're paying from the moment you exceed £25,000.
£212.85
£775.35
Plan 5 borrowers pay £562.50 more in their first five years of work at typical graduate salary progressions. That's money that could have gone to building emergency funds, saving for house deposits, or starting pensions early when compound interest has maximum effect.
Plan 5's write-off period is 40 years after the April you were first due to repay. For someone graduating in 2024, this means April 2064. If you graduated at age 22, you'll be 62 when write-off happens.
Write-off at age 52
Write-off at age 62
That's 10 additional years of repayments. For someone earning £40,000 during those extra 10 years, that's approximately £13,500 in additional repayments that Plan 2 borrowers don't make (£1,350 × 10 years).
Plan 5 borrowers will be paying student loans deeper into late career and potentially into early retirement. This affects retirement planning, career transition decisions, and financial flexibility in your 50s and early 60s.
Use our Graduation Year Impact Calculator to see exactly when your 40-year write-off date falls and how this compares to other plans.
The lower interest vs longer write-off trade-off creates winners and losers compared to the previous Plan 2 system:
If you're on track to earn £60,000+ consistently and will repay your loan in full well before 40 years, Plan 5's lower interest means you pay significantly less total.
For doctors, lawyers, finance professionals, tech workers, and others with high earning trajectories, Plan 5 is genuinely better. The lower interest saves substantial money.
If you're on track to earn £28,000-£45,000 throughout your career and would have had Plan 2 written off, Plan 5 makes you pay more total due to the longer repayment period and lower threshold.
Teachers, nurses, social workers, retail managers, and many other middle-income professions will pay more under Plan 5 than they would have under Plan 2, despite the "lower interest" headline.
There's a band around £50,000-£60,000 where Plan 5 and Plan 2 produce similar total repayment amounts. The lower interest and higher repayments of Plan 5 roughly balance against the shorter repayment period and lower threshold effects of Plan 2.
Use our Plan 5 Student Loan Calculator to model your specific situation and our Total Loan Cost Calculator to compare long-term costs.
Plan 5 changes the overpayment calculus compared to Plan 2. With Plan 2, overpayment almost never makes sense because write-off likelihood is high and interest outpaces repayments for most borrowers. Plan 5's lower interest means overpayments make more progress against the balance, potentially making early overpayment rational for some borrowers.
If you're earning in this range and likely to repay in full within 20-25 years, overpaying early could save interest. The 3.5% interest rate isn't negligible, and reducing principal saves you that 3.5% annually on the amount overpaid.
This calculation works for Plan 5 in ways it doesn't for Plan 2 because Plan 5's lower interest means you're more likely to repay in full and the interest saved is meaningful.
If you have a relatively small balance (under £25,000) and decent earnings (£40,000+), you might clear the loan within 10-15 years. Early overpayment could shave years off repayment and save interest.
If you're earning £30,000-£40,000 and expect to have a balance written off after 40 years, overpayment is still wasting money. Every pound overpaid is a pound you won't get back at write-off.
Even for mid-high earners likely to repay in full, pension contributions usually provide better returns than overpaying at 3.5% effective interest. Tax relief of 20-45% on pensions beats 3.5% interest saving on student loans.
If there's significant chance your career earnings will be lower than expected (career breaks, industry changes, health issues), overpayment risks wasting money on a loan that might be written off.
The general principle: Plan 5 makes overpayment slightly more reasonable than Plan 2, particularly for consistent mid-high earners. But it still doesn't beat pension contributions for most people, and write-off possibility means caution is warranted.
Our Student Loan Overpayment Calculator compares overpayment against alternative investments for Plan 5 specifically.
The lower threshold means Plan 5 borrowers face deductions earlier in their careers when money is typically tightest:
The early career financial squeeze is real for Plan 5 borrowers. You're repaying student loans 2-3 years earlier than Plan 2 borrowers would have been. This compounds with other early career challenges (high rent, building career, establishing financial stability). Strategic planning is essential.
By your 30s and 40s, Plan 5's lower interest means you should be making steady progress against your balance:
Plan 5 borrowers benefit equally from salary sacrifice as Plan 2 borrowers. Pension contributions through salary sacrifice reduce gross income, reducing student loan deductions. This is valuable regardless of plan.
Don't avoid promotions or raises due to student loan impact. Yes, earning £50,000 means paying £2,250 annually instead of £1,350 at £40,000. But the extra £10,000 gross provides £6,000+ extra net income after all deductions. Career progression remains financially beneficial despite higher student loan costs.
Check our Pension Salary Sacrifice Effect Calculator to model this for your situation, and see our student loan calculator for more optimization tools.
Real-world comparisons help illustrate the trade-offs:
Plan 5 costs this teacher £14,000 more over their career due to a longer repayment period and a lower threshold, despite the lower interest.
Plan 5 benefits this high earner substantially through lower interest, despite lower threshold.
These examples show why Plan 5 is better characterized as "better for high earners, worse for most others" rather than universally better or worse than Plan 2.
Plan 5 differs from Plan 2 in ways that materially affect your strategy:
Plan 5's lower interest is genuinely beneficial compared to Plan 2, but the longer repayment period and lower threshold mean most borrowers still pay substantial amounts over their working lives. The 40-year write-off remains your finish line, not clearing the balance to £0.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.