I have a plan 1 and plan 2 student loan: how do my repayments work?
How do repayments work if I have both Plan 1 and Plan 2 loans?
If you have both types of loan you will make one repayment, for example through your payroll or through Self Assessment if you complete a tax return. If you are an employee your form P45 (the form you are given by your old employer when you change jobs) will not show which type of loan(s) you have, so your employer should ask you if you have a Plan 1 or Plan 2 loan or both. If you do not confirm what loan type you have you will automatically be allocated a Plan 1 loan and this may result in incorrect repayments being deducted through the Pay As You Earn (PAYE) system.
The repayment will be allocated against the two types of loans depending on how much you earn and the repayment thresholds for the loans.
How are repayments allocated between Plan 1 and Plan 2 loans?
For the 2022/23 tax year the repayment thresholds are as follows:
- Plan 1 loans: £20,195
- Plan 2 loans: £27,295
If you earn below £20,195 you will make no loan repayments.
If you earn between £20,195 and £27,295 you will make Plan 1 loan repayments only.
If you earn over £27,295 you will make repayments which will be spread across both your Plan 1 and Plan 2 loans. This means that repayments calculated on income between £20,195 and £27,295 will be allocated against your Plan 1 loan and repayments calculated on your income above £27,295 will be allocated against your Plan 2 loan.
This allocation is best shown with an example.
Nathan has completed two courses, one started in 2009 and one in September 2016. He has two student loans, one is a Plan 1 loan and one is a Plan 2 loan. He finished his second course in July 2019 and after spending some time travelling and volunteering he started his first job in April 2022. If he earns over the repayment thresholds his first repayment will be due in April 2022.
a) Nathan earns £17,000 per year.
Nathan is not earning above the repayment threshold for either his Plan 1 or Plan 2 loans and so will not start repayments.
b) Nathan earns £21,000 per year
Nathan is earning above the Plan 1 threshold but not above the Plan 2 threshold this means that he will make repayments towards his Plan 1 loan but not towards his Plan 2 loan.
His annual repayment towards his Plan 1 loan is £72.45, or £6.04 per month and is calculated as:
£21,000 less £20,195 (repayment threshold) x 9%.
c) Nathan earns £28,000 per year
Nathan is earning above the Plan 1 and the Plan 2 repayment thresholds. Although Nathan will only see one deduction on his payslip which totals £702.45 across the tax year or £58.54 per month, this will be split between his two student loans.
The annual repayments are calculated as (£28,000 - £20,195) x 9%, so £7,805 x 9% = £702.45.
This is then split as follows:
Plan 1 loan: £27,295 - £20,195 (the Plan 1 repayment threshold) at 9%
= £7,100 x 9% = £639 per year or £53.25 per month
Plan 2 loan: £28,000 - £27,295 (the Plan 2 repayment threshold) at 9%
= £705 x 9% = £63.45 per year or £5.29 per month.
d) Nathan is self-employed
If Nathan is not an employee but self-employed and made profits of £28,000 then he would complete a Self Assessment tax return. His repayments will still be calculated as £702.45 for the 2022/23 tax year and will be allocated the same as the example above:
- Plan 1 £639.00 for the 2022/23 tax year
- Plan 2 £63.45 for the 2022/23 tax year
Towards the end of repaying your loans you can switch to monthly direct debits when you have fully repaid one loan and you expect to finish repaying your other loan over the next two years.
Remember if you have Plan 1 and Plan 2 loans then you start to repay your loan if you are earning over the repayment threshold from the April after you graduate from each course separately. For example, if you have both a Plan 1 and Plan 2 loan and you graduated from your first course in July 2012 and from your second course in July 2022 and begin a new job in August 2022 earning £28,000 annually then you will immediately start repaying your Plan 1 loan as you graduated from the course in July 2012, but you will not start repaying your Plan 2 loans until the April after you graduated from that course, so Plan 2 repayments will start from April 2023.