What Are Repayment Thresholds?
A repayment threshold is the minimum amount you need to earn before you start making student loan repayments. This is one of the most important features of the UK's student loan system, ensuring that graduates only repay when they can afford to do so.
Key Features of Repayment Thresholds
- Income-contingent repayments: You only make repayments when your income exceeds the threshold
- Percentage-based: You pay a fixed percentage (9% for most undergraduate loans, 6% for postgraduate loans) of only the amount above the threshold
- Plan-specific: Different loan plans have different thresholds
- Automatic protection: If your income drops below the threshold, repayments automatically stop
- Applied to all income types: The threshold applies to salary, self-employment income, and other taxable income
Why Thresholds Matter
Repayment thresholds directly impact:
- When you start making repayments after graduation
- How much you repay each month throughout your career
- Whether you're likely to repay your loan in full before it's written off
- The total cost of your education over your lifetime
The threshold is arguably more important than the interest rate or even the total amount borrowed, because it determines the actual cash flow impact on your finances regardless of your loan balance.
Example Calculation
If you earn £30,000 per year on Plan 2 (threshold: £27,295), you'll pay 9% of the amount over the threshold: 9% of (£30,000 - £27,295) = 9% of £2,705 = £243.45 per year, or approximately £20.29 per month.
Current Threshold Amounts
Each student loan plan has its own repayment threshold, which is typically updated at the start of each tax year (April 6th). Here are the current thresholds for the 2025/26 tax year:
Annual, Monthly, and Weekly Thresholds
| Plan Type | Annual Threshold | Monthly Threshold | Weekly Threshold |
|---|---|---|---|
| Plan 1 | £22,015 | £1,834 | £423 |
| Plan 2 | £27,295 | £2,274 | £525 |
| Plan 4 (Scotland) | £27,660 | £2,305 | £532 |
| Plan 5 | £25,000 | £2,083 | £480 |
| Postgraduate Loan | £21,000 | £1,750 | £403 |
Different Repayment Rates
In addition to different thresholds, the percentage you repay above the threshold also varies:
- Plans 1, 2, 4, and 5: 9% of income above the threshold
- Postgraduate Loan: 6% of income above the threshold
If you have multiple loan types, you may have to make repayments for each when your income exceeds their respective thresholds. For example, if you have both Plan 2 and Postgraduate loans, you could be repaying a total of 15% of your income above the thresholds.
Which Plan Are You On?
Your plan type depends on when and where you studied:
- Plan 1: Started before September 1, 2012 in England/Wales or Northern Ireland students
- Plan 2: Started between September 1, 2012 and July 31, 2023 in England/Wales
- Plan 4: Scottish students funded by Student Awards Agency Scotland
- Plan 5: Started on or after August 1, 2023 in England/Wales
How Thresholds Change Over Time
Repayment thresholds aren't fixed permanently - they can change over time, which affects your repayments throughout your career.
Annual Updates
Historically, thresholds have been reviewed annually, with changes typically implemented at the start of each tax year (April 6th). The process for updating thresholds varies by plan type:
- Plan 1: Previously linked to the Retail Price Index (RPI), but now subject to government policy decisions
- Plan 2: Originally intended to increase annually with average earnings, but has been frozen since April 2021
- Plan 4: Set by the Scottish government and adjusted periodically
- Plan 5: Fixed at £25,000 until at least April 2027, with future increases to be determined
- Postgraduate Loan: Fixed when introduced, with any changes subject to government policy
Threshold Freezes and Their Impact
In recent years, the government has frozen some repayment thresholds instead of increasing them with inflation or earnings. This has significant implications:
- A frozen threshold effectively lowers its real value over time due to inflation
- As wages typically rise with inflation, more of your income becomes subject to repayments
- This results in higher monthly repayments in real terms
- Graduates may start repaying earlier in their careers than they would have if thresholds had kept pace with earnings
Historical Threshold Changes
Looking at how thresholds have changed historically provides insight into potential future patterns:
| Plan Type | 2021/22 | 2022/23 | 2023/24 | 2024/25 | 2025/26 |
|---|---|---|---|---|---|
| Plan 1 | £19,895 | £20,195 | £21,000 | £22,015 | £22,015 |
| Plan 2 | £27,295 | £27,295 | £27,295 | £27,295 | £27,295 |
| Plan 5 | - | - | £25,000 | £25,000 | £25,000 |
Pro Tip
When planning your long-term finances, consider that thresholds may not increase as quickly as your salary. This means your student loan repayments might take up a larger proportion of your income over time, especially if thresholds remain frozen.
How Thresholds Impact Your Repayments
The repayment threshold has a significant impact on your financial situation both in the short term and throughout your career.
Monthly Cash Flow Impact
The most immediate effect of the threshold is on your take-home pay:
- A higher threshold means you keep more of your monthly income
- Each £1,000 increase in the threshold saves you approximately £7.50 per month (9% of £1,000 divided by 12)
- For lower earners, the threshold determines whether you make any repayments at all
- For higher earners, it determines how much of your income is subject to the 9% deduction
Long-term Financial Impact
Beyond the immediate effect on your wallet, thresholds significantly influence:
- Total repayment amount: Lower thresholds mean you repay more in total over your career
- Repayment duration: Lower thresholds can lead to paying off your loan faster, but with higher monthly payments
- Loan forgiveness: Higher thresholds make it more likely that part of your loan will be written off at the end of the repayment term
Different Impacts by Income Level
| Income Level | Threshold Impact |
|---|---|
| Below threshold | No repayments, though interest continues to accrue |
| Just above threshold | Small repayments that may not cover interest, balance continues to grow |
| Moderate income | Significant portion of income goes to repayments, may or may not repay in full |
| High income | Larger repayments, likely to clear loan before forgiveness, threshold changes have less proportional impact |
Practical Example
Consider two graduates on Plan 2 with identical £50,000 loans and £30,000 salaries. If the threshold were £25,000 instead of £27,295, they would pay an extra £207 per year (9% of the £2,295 difference), potentially amounting to thousands more over their repayment period.
Being Just Under vs Just Over the Threshold
The difference between earning just below or just above the repayment threshold can have significant implications for your finances.
The "Threshold Effect"
When your income crosses the threshold, you don't suddenly pay 9% of your entire salary. You only pay 9% of the amount above the threshold. However, even a small increase in income that pushes you over the threshold will trigger repayments.
Scenario Comparison
Let's compare two Plan 2 graduates with identical loans:
| Scenario | Annual Salary | Amount Above Threshold | Monthly Repayment |
|---|---|---|---|
| Just under threshold | £27,200 | £0 | £0 |
| Just over threshold | £27,400 | £105 | £0.79 |
| £1,000 over threshold | £28,295 | £1,000 | £7.50 |
| £5,000 over threshold | £32,295 | £5,000 | £37.50 |
Income Fluctuations Around the Threshold
For people whose income fluctuates around the threshold, repayments can be inconsistent:
- Seasonal workers: May make repayments only during high-earning months
- Commission-based jobs: Repayments may vary significantly month to month
- Multiple part-time jobs: Each employer applies the threshold separately if below the annual equivalent, but reconciliation happens at tax year-end
The "Pay Rise Trap"
A pay rise that takes you just over the threshold might result in a decrease in take-home pay if the increase is small enough. For example:
- Current salary: £27,200 (no repayments)
- Pay rise to: £27,400 (now paying 9% on £105 = £9.45 per year)
- Gross increase: £200 per year
- After repayments: £200 - £9.45 = £190.55 net benefit
While this is still a net benefit, the increase in take-home pay is less than the headline salary increase.
Important Note
You should never turn down a pay rise just because it takes you over the repayment threshold. While your net increase might be slightly reduced, you'll always be better off financially with the higher salary.
Overseas Repayment Thresholds
If you move abroad for more than three months, different repayment thresholds apply based on the cost of living in your country of residence.
How Overseas Thresholds Work
The Student Loans Company assigns countries to different threshold bands based on their relative cost of living compared to the UK:
- Countries with a higher cost of living than the UK have higher thresholds
- Countries with a lower cost of living than the UK have lower thresholds
- The bands range from A (highest threshold) to E (lowest threshold)
- These thresholds are applied in the local currency equivalent
Sample Overseas Thresholds by Band
Here are some examples of Plan 2 threshold bands for different countries (2025/26):
| Band | Example Countries | Annual Threshold (£) |
|---|---|---|
| A | Japan, Switzerland, Norway | £32,755 |
| B | USA, Canada, Australia | £27,295 |
| C | UAE, Singapore, Hong Kong | £21,835 |
| D | Vietnam, Mexico, South Africa | £16,380 |
| E | India, Thailand, Ukraine | £10,920 |
Notification Requirements
If you plan to move overseas:
- You must inform the SLC before you leave or within three months of leaving
- You'll need to complete an Overseas Income Assessment Form
- You'll need to provide evidence of your income and residency
- You must update the SLC if your circumstances change
Failure to notify the SLC can result in them applying a default fixed monthly repayment amount regardless of your income.
Moving Abroad?
If you're planning to work abroad, check the specific threshold for your destination country. In some lower-cost countries, you might need to make repayments on a much lower salary than you would in the UK.
Comparing Thresholds Across Plans
The differences in repayment thresholds between loan plans can have a significant impact on graduates' finances. Here's how they compare:
Threshold Comparison
| Feature | Plan 1 | Plan 2 | Plan 4 | Plan 5 | Postgrad |
|---|---|---|---|---|---|
| Current threshold (2025/26) | £22,015 | £27,295 | £27,660 | £25,000 | £21,000 |
| Repayment rate | 9% | 9% | 9% | 9% | 6% |
| Monthly repayment at £30,000 salary | £59.89 | £20.29 | £17.70 | £37.50 | £45.00 |
| Write-off period | 25 years | 30 years | 30 years | 40 years | 30 years |
| Typical loan amount | £10-25k | £40-60k | £10-20k | £40-60k | £10-12k |
Key Insights from the Comparison
- Plan 1 vs Plan 2: Despite having a lower threshold, Plan 1 graduates often pay less in total due to lower loan amounts and lower interest rates
- Plan 2 vs Plan 5: The £2,295 lower threshold for Plan 5 results in graduates paying approximately £17 more per month on a £30,000 salary
- Plan 4 (Scotland): Has the highest threshold, meaning Scottish graduates start repaying at higher income levels
- Postgraduate loans: The combination of a low threshold and a separate 6% repayment rate can significantly increase the total repayment burden for those with both undergraduate and postgraduate loans
Multiple Loan Types
If you have multiple loan types, the thresholds apply separately to each loan. For example, if you have both Plan 2 and Postgraduate loans and earn £30,000:
- Plan 2: 9% of income above £27,295 = 9% of £2,705 = £243.45 per year
- Postgraduate: 6% of income above £21,000 = 6% of £9,000 = £540 per year
- Total annual repayment: £783.45 (£65.29 monthly)
Potential Future Changes
Repayment thresholds are subject to government policy decisions and can change over time. Understanding potential future changes can help you plan your finances more effectively.
Historical Policy Changes
Past changes to thresholds have included:
- 2017: The Plan 2 threshold was raised from £21,000 to £25,000, significantly reducing repayments for many graduates
- 2018: Further increase in the Plan 2 threshold to £25,725, then annually increased to £27,295 by 2021
- 2021: The decision to freeze the Plan 2 threshold at £27,295 until at least 2026
- 2023: Introduction of Plan 5 with a lower threshold (£25,000) than Plan 2
What to Watch For
When monitoring potential future changes to thresholds, consider:
- Policy announcements: Government budgets and education policy statements often contain information about planned threshold changes
- Inflation and earnings growth: Whether thresholds are keeping pace with these economic indicators
- Threshold freezes: These effectively lower the threshold in real terms over time
- Changes to repayment rates: The 9% rate has remained constant but could theoretically be adjusted
- Changes to repayment terms: The length of time before loans are written off could be adjusted
Planning for Uncertainty
Given the potential for change in thresholds and other loan terms, it's advisable to:
- Focus financial planning on your take-home pay rather than gross salary
- Consider the possibility of lower thresholds when projecting future repayments
- Stay informed about potential changes to loan terms that could affect your repayments
- Reassess your repayment strategy when significant policy changes are announced
Stay Informed
Changes to repayment thresholds can significantly impact your monthly finances. Keep an eye on official announcements from the Student Loans Company and government education departments, particularly around budget statements and the start of new tax years.