A significant discussion is unfolding regarding the terms of student loan repayments, particularly for those with Plan 2 loans in England. These loans, issued to students who commenced university between September 2012 and July 2023, are currently under scrutiny due to recent policy adjustments and their implications for graduates. While Plan 2 loans are no longer issued to new students in England, they remain active in Wales, and impact a substantial portion of the graduate workforce.
A key change affecting Plan 2 borrowers is the government's decision, announced in the November 2025 Budget, to freeze the repayment threshold at £29,385 between 2027 and 2030. This means that, unlike previous arrangements where the threshold would typically rise with inflation, graduates will begin repaying their loans sooner and see a larger proportion of their increasing salaries directed towards their debt. Currently, Plan 2 graduates repay 9% of their earnings above this threshold. This move has drawn criticism from campaigners, who advocate for a reversal of the freeze, along with lower repayment rates and reduced interest rates.
The interest rate applied to Plan 2 loans is calculated based on the Retail Prices Index (RPI) measure of inflation, plus an additional percentage of up to 3% depending on a graduate's earnings. While the maximum interest rate on Plan 2 loans is currently 6.2%, it will be capped at 6% from the 2026-27 academic year in England. Despite making consistent repayments for many years, many graduates with Plan 2 loans report struggling to make a significant reduction in their overall debt, which often exceeds tens of thousands of pounds upon graduation.
Beyond tuition fees, student loans also include maintenance loans designed to cover living costs such as accommodation, food, and study materials. The amount of maintenance loan available is means-tested, varying based on household income and location within the UK. For instance, in England and Wales, the maximum maintenance loan for students living away from home outside London is set to rise to £10,830 for the 2026-27 academic year. However, research published in May 2024 by the Higher Education Policy Institute indicated that maintenance loans in England typically cover only about half of a student's living expenses, with the shortfall being even greater for those studying in London.
Looking ahead, the government plans to reintroduce maintenance grants of up to £1,000 per year for lower-income students in England pursuing courses aligned with its Industrial Strategy. These grants are expected to be available from 2028, with a list of eligible courses still being developed. These changes highlight an evolving landscape for student finance in the UK, as policymakers attempt to balance funding higher education with managing graduate debt burdens.
Source: UK Government, Higher Education Policy Institute