The question of whether to pay off your student loan early is one of the most common financial dilemmas for UK graduates. The answer depends entirely on your plan type, balance, salary trajectory, and interest rate. For most Plan 2 borrowers, early repayment is actually a bad idea because the loan is written off after 30 years — paying extra just means you overpay before the write-off date. But for Plan 1 borrowers with small balances, or high earners on any plan, the maths can favour early clearance. This guide breaks down the decision framework for each plan type.[1]
How do student loan repayments work?
All UK student loan plans use the same basic mechanic: you repay 9% of earnings above your plan's threshold. The thresholds for 26-27 are:
- Plan 1: £26,900/year — repay 9% of earnings above this
- Plan 2: £29,385/year — repay 9% of earnings above this
- Plan 4: £33,795/year — repay 9% of earnings above this
- Plan 5: £25,000/year — repay 9% of earnings above this
Repayments are deducted from your salary via PAYE (like tax and NI). If you earn £40,000 on Plan 2, your annual repayment is9% × (£40,000 − £29,385) = £955/year (£80/month). This continues until the loan is either fully repaid or written off, whichever comes first.
When are student loans written off?
Each plan has a different write-off rule, and this is the critical factor in the early repayment decision:
- Plan 1: Written off when you turn 65 (or 25 years after the April you were first due to repay, if earlier)
- Plan 2: Written off 30 years after the April you were first due to repay
- Plan 4: Written off when you turn 65 (or 30 years after the April you were first due to repay, if earlier)
- Plan 5: Written off 40 years after the April you were first due to repay
The write-off is tax-free — there is no charge when the remaining balance is cancelled. This means that any money you pay towards a loan that would have been written off anyway is effectively wasted. You would have been better keeping that money or investing it.
Should I repay my Plan 2 loan early?
For most Plan 2 borrowers, the answer is no. Plan 2 loans accrue interest at RPI + up to 3% (depending on income), meaning the balance often grows faster than repayments reduce it — especially in early career years when earnings are below or just above the threshold of £29,385. The key insight: if you will not repay the full balance within 30 years through normal deductions, then paying extra is money lost.
The break-even calculation: estimate your total repayments over 30 years based on projected salary growth. If this total is less than your current balance plus accumulated interest, you will hit the write-off and benefit from it. Only if your projected total repayments exceed your balance would early repayment save you money (by reducing the interest you pay). For most people who graduated with £50,000+ of debt, write-off is likely unless they earn significantly above average for their entire career.
When does early repayment make financial sense?
Early repayment is worth considering when:
- You are on Plan 1 or Plan 4 with a small remaining balance (under £5,000–£10,000). Plan 1 interest is low (RPI or Bank of England base rate + 1%, whichever is lower), so the balance does not grow much. If you will clearly repay in full within a few years anyway, paying it off early saves a small amount of interest and removes the 9% deduction from your payslip immediately.
- You are a high earner who will repay in full regardless. If you earn £80,000+ and will definitely clear the balance before write-off, early lump-sum repayments reduce the total interest paid. But check the interest rate versus what you could earn investing elsewhere — if your ISA returns 6% and your loan charges 4%, you are better off investing.
- You are emigrating permanently. The Student Loans Company sets repayment amounts for overseas borrowers based on country-specific thresholds that may be less favourable. Some emigrants prefer to clear the balance rather than deal with ongoing SLC administration.
How does early repayment affect my monthly take-home?
Clearing your student loan removes the 9% deduction from your payslip. At a salary of £40,000 on Plan 2, this means an extra £80/month in take-home pay. Combined with your marginal tax rate of 20% income tax + 8% NI, your total deductions on income above the threshold drop from 37% to 28%.
Use the calculator at £40,000 with Plan 2 to see exactly how much your student loan costs you each month, then compare against the same salary without the loan to see the monthly gain from clearing it.
What should I do instead of early repayment?
If early repayment does not make sense (because you will hit write-off), the money is better deployed elsewhere:
- Build an emergency fund — 3–6 months of expenses in an easy-access savings account provides security that overpaying a loan does not.
- Contribute to a pension — you get 20% or 40% tax relief plus employer matching. This beats the interest saving on most student loans.
- Invest in an ISA — long-term market returns typically outpace student loan interest, and growth is tax-free. See our LISA guide if you are saving for a first home.
- Clear higher-interest debt first — credit cards, overdrafts, and car finance typically charge far more than student loan interest.
Sources
- Student Loans Company — Repaying your student loan. Thresholds, repayment rates (9%), and write-off rules for all plan types. Accessed July 2026.
- HMRC — Income Tax rates and Personal Allowances. Basic rate 20%, higher rate used for marginal rate calculations. Accessed July 2026.