Complete explanation of below-threshold earnings, loan write-off, and what it means for your financial future
If you never earn enough to reach the repayment threshold, you make zero repayments and your loan is completely written off after thirty years (Plan 2) or forty years (Plan 5) tax-free with no financial penalty.
This is fundamentally different from defaulting on commercial debt. Your credit rating remains unaffected, no bailiffs will pursue you, and the write-off creates zero tax liability or financial consequences. The loan balance grows with interest during this period, but this becomes irrelevant as the entire remaining amount gets written off regardless of size.
UK student loans function as income-contingent graduate contributions rather than traditional debt. If your income never justifies contributions, you simply never make them, and the loan disappears after the write-off period. This safety net means university attendance carries minimal financial risk for those whose careers remain moderate-earning, as actual lifetime costs stay manageable regardless of nominal debt amounts.
Understanding below-threshold mechanics requires knowing the specific income levels that trigger repayments and what happens when you remain beneath them.
| Loan Plan | Annual Threshold | Monthly Threshold | Repayment Rate |
|---|---|---|---|
| Plan 1 | £22,962 | £1,914 | 9% |
| Plan 2 | £28,470 | £2,373 | 9% |
| Plan 4 | £32,760 | £2,730 | 9% |
| Plan 5 | £26,075 | £2,173 | 9% |
| Postgraduate | £21,903 | £1,825 | 6% |
Thresholds apply to gross income before tax. You only make repayments on the amount above the threshold, not your entire salary. These thresholds increase annually with earnings growth.
Example 1: Part-Time Work (Plan 2)
Graduate working part-time earning £22,000 annually, well below £28,470 Plan 2 threshold.
Result: Zero monthly deductions. Take-home pay unaffected by student loan. Annual Student Loans Company statement shows £0 repaid. Balance grows with interest accumulation but creates no immediate financial burden.
Example 2: Self-Employment Low Income (Plan 2)
Self-employed graduate with business income of £25,000 after expenses, below threshold.
Result: When completing Self Assessment tax return, declares income below threshold. HMRC calculates zero student loan repayment obligation for tax year. No payments made, no penalties incurred.
Example 3: Career Break or Unemployment (Plan 2)
Graduate unemployed or on career break receiving no income or benefits only.
Result: Zero income means zero repayment obligation. No need to inform Student Loans Company during unemployment periods. Loan remains in good standing with no adverse consequences. Resume repayments automatically when income returns above threshold.
Below-threshold status requires no paperwork, applications, or communications with Student Loans Company. The system operates automatically through PAYE for employed individuals. Your employer's payroll calculates whether income exceeds threshold and only deducts repayments when appropriate. Self-employed individuals report income through Self Assessment, with HMRC calculating obligations. There is no "application" for zero repayment status - it simply happens automatically when income remains below threshold.
While you make no repayments, your loan balance doesn't remain static - it grows through interest accumulation creating concerning-looking statements but ultimately irrelevant amounts.
Below-threshold borrowers pay zero monthly but accumulate interest at rates determined by their loan plan and income level:
Plan 2 Interest Rates for Below-Threshold Earners
Borrowers earning below £28,470 threshold pay RPI interest rate (currently 4.8%). This applies whether earning £0 or £28,469 - any income below threshold triggers lowest rate.
A graduate with £45,000 loan earning £24,000 annually accumulates approximately £2,160 interest yearly (4.8% on £45,000). After five years below threshold, original £45,000 grows to approximately £56,000 through compound interest despite making zero repayments.
Why Growing Balances Don't Matter
This balance growth seems alarming but becomes completely irrelevant at write-off. Whether your balance grows to £60,000 or £160,000, the entire amount gets written off tax-free after thirty or forty years. The write-off doesn't distinguish between original borrowing and accumulated interest - everything disappears. Therefore, watching balances grow during below-threshold periods represents purely psychological burden with zero financial consequences for those reaching write-off.
Many below-threshold borrowers experience significant anxiety watching loan balances grow substantially despite making zero payments. Annual statements showing £50,000 growing to £60,000 then £70,000 create stress and feelings of financial failure, particularly when comparing to peers whose repayments reduce balances.
Reality check: This anxiety, while understandable, is misplaced. The growing balance has zero impact on your actual finances. It doesn't affect credit ratings, doesn't prevent home ownership or other borrowing, and will eventually disappear entirely at write-off. Focus mental energy on building positive net worth through savings and investments rather than fixating on nominal loan balance you'll likely never fully repay. For strategies managing this psychology, see our guide on repayment strategies.
Write-off provisions represent the fundamental safety net making below-threshold earnings financially viable rather than catastrophic debt situations.
Your loan balance, regardless of size, is completely written off after thirty years (Plan 2) or forty years (Plan 5) from the April following course completion. This happens automatically - no application required. Student Loans Company simply cancels remaining balance in full.
Tax treatment: Write-off creates zero tax liability. Unlike commercial debt forgiveness which often triggers income tax on forgiven amounts, student loan write-off is completely tax-free. You receive no tax bill and face no reporting requirements.
Timing example: Graduate completing three-year degree June 2025 sees write-off occur April 2056 (Plan 2) or April 2066 (Plan 5). If they earned below threshold for entire period making zero repayments, full balance including accumulated interest gets written off without any financial consequence or penalty.
For borrowers never reaching threshold, calculating actual lifetime cost proves simple: zero. Despite nominal debt of £45,000, £60,000, or £100,000, actual out-of-pocket cost equals zero pounds over entire lifetime.
Comparison to Alternative Scenarios
Never-earner total cost: £0 over thirty/forty years, full write-off
Moderate earner (£35k average): Approximately £32,000-£38,000 paid over thirty years, £35,000-£45,000 written off
High earner (£60k+ average): Full repayment of £60,000-£75,000 including interest over fifteen to twenty years
Counterintuitively, never-earners and very low earners achieve better financial outcomes than moderate earners who pay substantial amounts but still reach write-off without clearing balances. Only high earners who fully repay face higher costs than never-earners, but their elevated incomes provide ample compensation.
Student loan write-off bears no resemblance to defaulting on commercial debt. It creates no adverse credit file entries, no county court judgments, no bankruptcy implications, and no financial penalties. Your credit score remains unaffected throughout below-threshold periods and after write-off. You can obtain mortgages, credit cards, and other borrowing normally. The write-off is policy design feature rather than failure consequence, representing government's deliberate decision to cap graduate contributions at affordable levels through income-contingent structure.
Beyond the direct repayment question, below-threshold status affects various aspects of financial life requiring understanding for comprehensive planning.
Student loans affect mortgage and other borrowing applications even when making zero repayments through below-threshold status.
Mortgage Applications
Mortgage lenders assess affordability by calculating disposable income after essential expenses. Student loan repayments count as committed expenditure even when currently zero. Most lenders use potential future repayments based on projected income rather than current zero payments.
Practical impact: If earning £24,000 with zero repayments but applying for mortgage based on £32,000 affordability, lenders may calculate student loan deductions at higher income level reducing maximum mortgage by £10,000-£15,000. However, student loans don't appear on credit files as debt, preventing rejection based purely on nominal balance size. For detailed guidance, see our mortgage affordability tool.
Credit Cards and Personal Loans
Student loans have minimal impact on credit card or personal loan applications as they don't appear on credit reports. Lenders assess these applications primarily on credit score, income level, and existing commitments shown on credit files. Your student loan balance and repayment status remain invisible to most consumer credit lenders, making below-threshold status essentially irrelevant for these borrowing types.
Below-threshold status affects career and life decisions in subtle ways beyond direct financial costs:
While below-threshold status creates no loan-related financial problems, prolonged periods earning substantially below threshold may indicate broader career or financial challenges worth addressing. If five to ten years post-graduation you remain well below £28,000 in field with higher typical earnings, consider whether career development, additional training, or job search strategies might improve prospects independent of loan considerations. The loan write-off safety net provides security but shouldn't mask underlying career underperformance requiring attention. However, many fulfilling careers in education, social services, creative fields, and caring professions legitimately earn below threshold throughout careers, making below-threshold status perfectly acceptable outcome for those prioritizing non-financial rewards.
Various career and life paths lead to below-threshold earnings, each with distinct characteristics and financial implications.
Career path: Starts teaching earning £28,000, progresses slowly to £35,000 by year ten, plateaus at £43,000 maximum.
Repayment trajectory: First three years mostly below or near threshold with minimal payments. Years four through fifteen pay moderate amounts averaging £1,200 annually. Final years increase to £1,800 annually. Total paid over thirty years approximately £35,000, with £40,000 written off.
Outcome analysis: Teacher pays less than half of original loan amount over full career, with interest and remaining principal written off. Below-threshold early years reduce total lifetime costs substantially compared to immediate high earnings. This demonstrates write-off optimization benefit for moderate-earning professionals. For detailed teaching analysis, see our profession tracker.
Career path: Works full-time earning £32,000 for five years, then reduces to part-time twenty hours weekly earning £18,000 for childcare, continues part-time fifteen years, returns full-time age forty-five.
Repayment trajectory: First five years pay approximately £3,000 total. Next fifteen years pay zero being substantially below threshold. Final ten years pay approximately £8,000. Total lifetime payments £11,000 despite £45,000 original borrowing.
Outcome analysis: Extended part-time period creates massive write-off benefit, with borrower paying only twenty-four percent of original loan amount. This demonstrates how career breaks and part-time work dramatically reduce student loan costs for those reaching write-off, making family-friendly career patterns financially advantageous regarding loan obligations even if reducing overall career earnings.
Career path: Freelance graphic designer with volatile income ranging £15,000 to £40,000 annually, averaging £26,000 over career.
Repayment trajectory: Years below threshold pay zero through Self Assessment. Years above threshold pay variable amounts from £0 to £1,100 depending on income. Total payments over thirty years approximately £12,000-£18,000 depending on income luck.
Outcome analysis: Income volatility creates favorable loan outcomes as high-earning years pay modest amounts while low years contribute nothing. Self-employed borrowers with income near threshold benefit substantially from write-off system compared to salaried employees with steady above-threshold earnings. This explains why creative and freelance careers often prove financially viable despite lower average earnings, as student loan system accommodates income volatility better than commercial debt.
Below-threshold earnings create zero financial obligation regarding student loans, with entire balance including accumulated interest written off tax-free after thirty or forty years. This fundamental safety net means university attendance carries minimal financial risk for those whose careers remain moderate-earning, as actual lifetime costs stay manageable regardless of nominal debt amounts. Growing balances during below-threshold periods represent purely psychological burden without financial consequences, as write-off eliminates everything regardless of size. Credit ratings remain unaffected, other borrowing continues normally, and no penalties or adverse consequences result from never repaying. This income-contingent structure makes student loans fundamentally different from commercial debt, functioning more as capped graduate contribution than traditional loan requiring full repayment.
For personalized projections, use our student loan calculator. For comprehensive guidance, see our complete guide to UK student loans.
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.