If you have a Plan 2 student loan and are one of the 5.8 million loan holders, be aware that the way you repay your loan is going to change — and it’s definitely not going to work in your favour. This announcement by the Chancellor was made in one line of the Autumn Budget 2025 speech. Although it barely deserved a mention in the news at the time, it has generated legitimate outrage, with Martin Lewis calling it “not moral,” and the London Assembly formally opposing it.
Here we aim to break down for you what this change will mean to you, how this change will affect you, how much the change will cost you, and why it has become a hotly debated subject, leaving the financial world buzzing — all in simple English terms.
Quick Summary: The Plan 2 Threshold Freeze
- What’s frozen: The Plan 2 salary threshold at which borrowers repay their loans
- Threshold amount: Frozen at £29,385 (reached in April 2026)
- Freeze period: April 2027 to April 2030
- Who’s affected: Plan 2 borrowers — English students who started university from 2012 to 2023, and Welsh students from 2012 onwards
- Estimated impact: graduate borrowers will pay around £3,000 more in lifetime repayments, according to the Institute for Fiscal Studies (IFS)
- Separate change: Plan 2 and Plan 3 interest capped at 6% from 1st September 2026 — this one is actually positive for borrowers
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What Exactly Is Being Frozen?
To understand the freeze, let’s first look at how Plan 2 loan repayments operate. Plan 2 borrowers repay 9% of their earnings above a specified salary threshold. Until recently, this threshold increased annually, generally following average earnings in the UK. This means that, with increasing wages throughout the country, so did the threshold beyond which you started repaying your loan.
The threshold is due to reach £29,385 in April 2026, up from £28,470. Under the old system, this figure would continue to increase each year relative to the average increase in earnings. However, at the Autumn 2025 Budget, the Chancellor announced that, from April 2027, the threshold will be held at £29,385 for three years (2027–28, 2028–29, 2029–30), and will then increase each year relative to RPI following the 2029–30 Budget.
The threshold at which higher interest rates kick in on your loans is also being held at £52,885 for the same period (2027–28, 2028–29, 2029–30).
⚠️ This only affects Plan 2 borrowers. If you’re on Plan 1, Plan 3 (postgraduate), Plan 4 (Scotland), or Plan 5 (English students who started from September 2023 onwards), this specific threshold freeze doesn’t affect you. Plan 2 covers English students who started their course between 2012 and 2023, and Welsh students from 2012 onwards. If you’re not sure which plan you’re on, you can check your account on gov.uk or the Student Loans Company.
What This Actually Costs You: Fiscal Drag Explained
The term you’ll see most often in coverage of this change is “fiscal drag”, and it’s worth understanding, because it explains how a frozen threshold means you lose money even though, on paper, the rules haven’t changed for you.
Under the old system, the threshold rose each year in line with wages, so the gap between what you earned and what you had to repay above stayed roughly the same. Now, the threshold stays fixed while wages continue to rise. As a result, a greater and greater share of your income sits above the threshold and becomes repayable — not because the repayment rate has changed, but because more of your income falls into the repayable band. This is what happens with any frozen threshold. Commentators call this a “double drag” here, because two thresholds are frozen at once — the repayment threshold itself, and the higher-rate interest threshold — so borrowers lose out on both fronts simultaneously.
How Much More Will You Have to Pay?
According to the Institute for Fiscal Studies, for someone earning above £30,416, the freeze adds up to:
| Tax Year | Extra Annual Repayment |
| 2027–28 | Around £93 more |
| 2029–30 | Around £259 more (approximately £22 a month) |
Based on their research, the IFS estimates that, over time, the average borrower from the 2022 university entrance cohort will pay about £3,000 more than they would have paid under the previous system. Middle-to-lower earnings, especially, will pay more. Graduates in the third decile of lifetime earnings — typically those on mid-level salaries just above the threshold — are hit hardest, and could pay almost £5,000 more over the life of their loan.
For context, if you pass the Plan 2 threshold, you lose 29% of every additional pound earned (20% income tax and 9% loan repayment), before National Insurance, as a basic-rate taxpayer. If you are a higher-rate taxpayer, you lose 49% (40% income tax and 9%). A frozen threshold means a larger part of your income stays in that repayable bracket for longer.
⚠️ Many Plan 2 borrowers are not earning enough for their balances to shrink. HM Treasury’s own borrower impact model, published in the 2021 spending review, determined that the average graduate repaying a Plan 2 loan would continue to see their balance grow with repayments of £415 per month, assuming annual earnings of £66,000. This predates the freeze, but it’s essential for understanding why campaigners are so concerned — even a well-paid graduate can see interest outpace their repayments.
✅ The One Actual Change That Helps: The Interest Rate Cap
While it’s not all bad news, the government confirmed on the 7th of April 2026 that interest on both Plan 2 and Plan 3 loans would be capped at 6% from the 1st of September for the 2026/27 academic year. The government says this is to protect students from inflation.
Before the cap, Plan 2 loans accrued interest at about 6.2% (RPI plus 3%). The cap won’t counter the threshold freeze, but it will limit how much interest builds up on your current balance — the opposite effect of the freeze on your repayments.
Why Wasn’t This Announced More Clearly?
The freeze was buried at the bottom of a single sentence in the Autumn Budget 2025 document, framed as a “fairer” part of the tax system, without standing as a separate announcement. It received little to no coverage in the mainstream news when the Budget document was released in November 2025, and the public finance debate didn’t start until around January 2026, when Martin Lewis and other financial journalists took an interest.
The Social Market Foundation and the London Assembly say Plan 2 borrowers took out those loans believing the threshold would keep pace with the cost of living, and that freezing it effectively imposes new terms on a loan agreement borrowers had no control over.
Should You Overpay Your Plan 2 Loan Now?
Until the freeze is final, this is the most-asked question, and unfortunately there’s no universal answer. Your income, your balance, and how long you’ll be repaying the loan all matter here.
To understand the reasoning generally, without this being a blanket recommendation:
- For higher earners who can realistically pay off their loan balance within the 30-year repayment window, overpaying could reduce the total interest paid, since the loan would be cleared earlier than the system assumes.
- For lower-to-middle earners who won’t clear the loan balance before it’s written off after 30 years, overpaying won’t save money — you’d effectively be overpaying on a loan that would have been wiped anyway.
The most accurate answer depends on your income trajectory over time, which is genuinely hard to predict early in your career.
💡 This is general information, not personal financial advice. If you’re thinking about overpaying on your loan, consider your current and future income and how many years you have left on your loan — both will affect whether overpaying is worth it. It’s also worth noting that overpayments on most student loans aren’t returned. Use one of the repayment calculators available through Moneysaving Expert or the Student Loans Company, or speak to a financial adviser, before making a lump-sum overpayment.
❓ Frequently Asked Questions
What is the Plan 2 student loan threshold being frozen at?
The threshold will stay at £29,385 (the level it reaches in April 2026), and won’t move for the following three years (April 2027 to April 2030). Previously, the threshold increased every year in line with average earnings.
Who does the Plan 2 threshold freeze affect?
The freeze affects Plan 2 borrowers — English students who began their studies between 2012 and 2023, and Welsh students from 2012 onwards. This affects approximately 5.8 million borrowers. It does not affect Plan 1, Plan 3, Plan 4, or Plan 5 borrowers.
How much more will the freeze cost me?
According to IFS estimates, someone earning above £30,416 may pay about £93 more in the 2027–28 tax year, rising to about £259 more (around £22 a month) by 2029–30. The average affected graduate from the 2022 entry cohort could end up repaying an additional £3,000 in total over their career.
Will the interest rate on my Plan 2 loan be changing as well?
Yes — Plan 2 and Plan 3 loan interest rates are being capped at 6% from 1st September 2026, which is another protection for borrowers, separate from the threshold freeze.
Why do they call this fiscal drag?
Because your salary keeps rising while the repayment threshold doesn’t, more and more of your income falls above the threshold and becomes repayable over time. The repayment rate itself doesn’t change — but more of your income ends up subject to it. This is the same effect that happens when income tax thresholds are frozen.
Should I make overpayments before the freeze?
It depends on you. If you’re confident you’ll pay off your loan in full before it’s written off at the end of 30 years, overpaying now is likely to be worthwhile. If you’re not sure, use an independent repayment calculator or talk to a financial adviser first, since these overpayments usually can’t be returned.
📌 Quick Reference
Frozen threshold: £29,385, from April 2027 to April 2030
Affects: Plan 2 borrowers only (~5.8 million people)
Estimated lifetime cost: ~£3,000 extra for the average affected graduate
Interest rate cap: 6% from 1 September 2026 (Plan 2 and 3) — a separate, favorable change
Announced: Autumn Budget 2025, effective from April 2027
Check your plan: gov.uk or the Student Loans Company
The Plan 2 threshold freeze isn’t an abrupt, dramatic change, and that’s what makes it easy to miss. Over a working lifetime, it can add up to thousands of pounds in extra repayments. If you’re on Plan 2, it’s worth checking where your income sits relative to the threshold, and factoring this freeze into your wider financial planning rather than assuming the loan terms are fixed for good.