Key takeaways
- The Plan 2 repayment threshold stays at £29,385 through 2027-28, 2028-29 and 2029-30, instead of rising with RPI as the 2009 regulations otherwise require.
- Anyone earning above £32,390 for all three years repays £566.55 more than they would have on the RPI path, or about £15.74 a month.
- That £566.55 is flat cash, not a percentage. It adds 24.6% to three years of repayments at £40,000 and 7.4% at £60,000.
- On £30,000 the freeze is the entire reason you repay anything in those years: £166.05 in total, against nothing at all on the unfrozen threshold.
- Uprating resumes at £30,210 in 2030-31, measured from the frozen base, so a gap of roughly £3,090 stays open after the freeze ends.
What the Plan 2 student loan threshold freeze costs at four salaries
If you're repaying a Plan 2 loan, you want one number: how much more leaves your pay because the threshold stops moving in April 2027. The Plan 2 student loan threshold freeze carries no per-person figure anywhere in Budget 2025, so the number has to be built from the rules. For anyone earning above £32,390 across the whole period, it's £566.55 over the three tax years from 2027-28 to 2029-30. That's about £15.74 a month. Earn less than that and the figure falls, because part of your salary sits under the threshold on either path.
Plan 2 covers undergraduate loans taken out between 2012 and 2023, and repayments are 9% of income above the threshold. GOV.UK puts the 2026-27 threshold at £29,385 a year, £2,448 a month or £565 a week. Budget 2025 said the threshold "will be frozen at £29,385 for three years from April 2027". So the arithmetic is a subtraction: what the threshold is, against what the statutory formula would have made it.
The table below runs both paths. Salaries are held flat in nominal terms across the three years. Real pay doesn't behave that way, and holding it still is what makes the threshold effect visible on its own.
| Salary | Repaid 2027-28 to 2029-30, threshold frozen | Repaid on the RPI path | Extra | Increase |
|---|---|---|---|---|
| £30,000 | £166.05 | £0 | £166.05 | from nothing |
| £40,000 | £2,866.05 | £2,299.50 | £566.55 | 24.6% |
| £50,000 | £5,566.05 | £4,999.50 | £566.55 | 11.3% |
| £60,000 | £8,266.05 | £7,699.50 | £566.55 | 7.4% |
The £30,000 row is the one that surprises people. On the unfrozen threshold you'd have been below the line in all three years, and your Plan 2 deductions would have been zero. Frozen, you pay £55.35 a year.
Where £29,385 came from, and where it would have gone
The Plan 2 threshold isn't set by a Budget decision each year. It's set by a formula in the Education (Student Loans) (Repayment) Regulations 2009. Schedule 1A takes last year's threshold and multiplies it by what the regulations call the repayment threshold variable, then rounds up to the nearest £5. Regulation 8B defines that variable as one plus "the percentage increase, expressed as a decimal, in the retail price index between the two Marches immediately before the commencement of the previous repayment threshold year".
Unpick the lag and it's a one-year delay. The 2026-27 threshold uses the RPI All Items Index for March 2024 and March 2025. ONS puts those at 383.0 and 395.3, a rise of 3.2115%. Multiply £28,470 by that and you get £29,384.31. Round up to the nearest £5 and you get £29,385, which is the figure the Department for Education announced on 26 November 2025. The formula reproduces the published number to the pound, which is why the counterfactual below is arithmetic rather than guesswork.
Now run it forward. The 2027-28 threshold would use March 2025 and March 2026, which ONS puts at 395.3 and 411.4. That's a rise of 4.0729%, and it is already measured and published. So the first year of the freeze isn't a forecast at all: £29,385 multiplied by 1.040729 is £30,581.81, and rounded up, £30,585.
The next two years need RPI that hasn't happened yet. The OBR's March 2026 Economic and fiscal outlook has RPI inflation "averaging 2.9 per cent a year from 2027 to 2029". On that path the threshold reaches £31,475 in 2028-29 and £32,390 in 2029-30. Those two figures are forecasts and should be read as such. The Department for Education's own pre-freeze forecast of the Plan 2 threshold landed on £31,474 and £32,387, within £5 of both.
Plan 2 is the only plan in that forecast standing still. The same table has the Plan 1 threshold going from £26,900 to £28,005 in 2027-28, and the Plan 5 threshold from £25,000 to £26,025. Both are rises of about 4.1%, which is the same March 2026 RPI figure the Plan 2 threshold would have used. Budget 2025 named Plan 2 and nothing else.
So the gap the freeze opens is £1,200 in 2027-28, £2,090 in 2028-29 and £3,005 in 2029-30. Add them and £6,295 of income that would have been below the threshold sits above it instead. At 9%, that's £566.55.
Why the extra is the same £566.55 at £40,000 and at £60,000
A threshold freeze doesn't work like a tax rate rise. It moves the line, not the slope. Every pound of the £6,295 gap is charged at the same 9% regardless of what you earn above it, so the cash cost is identical for everyone who clears the unfrozen threshold in all three years.
What differs is what that cash is relative to. At £40,000 you'd have repaid £2,299.50 over the three years on the RPI path, so £566.55 is a 24.6% increase. At £50,000 it's 11.3%. At £60,000 it's 7.4%. The same policy, the same money, a third of the proportional bite. That pattern runs in the opposite direction to the Budget's stated reasoning, which was that "graduates generally benefit from higher earnings, and ensuring that they repay more of their loan is fair for those workers who have not gone to university".
Below the unfrozen threshold the arithmetic changes shape again. On £30,000 you're inside the £1,200, £2,090 and £3,005 gaps rather than above them, so you pay 9% of £615 a year and no more. £166.05 over three years is smaller in cash than the £566.55 above, and infinitely larger as a proportion, because the comparison is with zero.
The freeze drags the Plan 2 interest threshold down with it
This is the part that gets missed. The Plan 2 student loan threshold freeze, as announced, covered the repayment threshold and said nothing about interest. But regulation 21AB of the same 2009 regulations says that for a domestic borrower "the lower interest threshold is the repayment threshold for a plan 2 loan". They are the same number by definition, so freezing one freezes the other.
Plan 2 interest is RPI while income is at or below the lower threshold, and RPI plus up to 3% between the lower threshold and £52,885. GOV.UK sets out how the extra is worked out: "we calculate how far your income sits between the lower and higher repayment thresholds. We then apply that proportion to 3%." Its own worked example at £40,000 gives 1.35%.
So a borrower on £30,000 in 2027-28 would have been under the £30,585 lower threshold and charged RPI only. Frozen, they sit £615 above £29,385 and pick up a sliver of variable interest instead. It's a fraction of a percentage point, and on a balance that most borrowers never clear it's close to irrelevant. It's worth knowing about because it's the mechanism nobody announced. The rate charged on that sliver is a separate annual decision, and the plan 2 student loan interest rate for 2026/27 is capped at 6% rather than running to RPI plus 3%.
A longer student loan threshold freeze already ran, and it opened a £7,270 gap
Plan 2 has been here before. GOV.UK's record of previous thresholds shows £27,295 held from 6 April 2021 to 5 April 2025, four years without a rise, followed by £28,470 for 2025-26.
Run the statutory formula across those four years using the ONS March index values and the picture is stark. The threshold would have gone to £27,700 for 2022-23, £30,185 for 2023-24, £34,265 for 2024-25 and £35,740 for 2025-26. It was £28,470. That's a gap of £7,270, more than twice the £3,005 the current freeze reaches at its widest, and it came from the two years in which March RPI ran at 8.96% and then 13.51%.
Two caveats on that counterfactual. It is what the formula would have produced, not a claim about what any government would have permitted, and the RPI prints of 2022 were extraordinary. It's still the best available guide to how a threshold freeze behaves when inflation surprises, and the answer is that the reader carries the surprise.
The Treasury's own scorecard is mostly a loan book revaluation
Budget 2025's policy decisions table scores the measure at line 48, "Student Loans: Freeze Plan 2 repayment threshold for three years from 6 April 2027", classified as Spend rather than Tax. The entries across 2025-26 to 2030-31 are +285m, +5,915m, +255m, +290m, +355m and +380m.
The £5,915 million lands in 2026-27, a year before anybody repays a penny more. A footnote to the OBR's financial transactions table explains why: "The 2026/27 student loans figure captures the effect of the revaluation of the loan book caused by the freezing of the plan 2 repayment threshold". Holding the threshold raises what the book is expected to collect, and the scorecard books that gain in the year the measure was announced rather than in the years anyone pays it.
The ongoing lines are the ones that reconcile with the table at the top. Divide the £255 million scored for 2027-28 by the £108 a borrower above the threshold pays that year, and you get about 2.4 million borrowers. The Department for Education's 2024 forecast put 2,385,000 full-time Plan 2 higher education borrowers above the repayment threshold in 2027-28. Two sources that never speak to each other land in the same place, which is the check worth having on arithmetic this fiddly.
The strongest objection is the 30 year write-off
Here's the case against treating £566.55 as a loss. Plan 2 balances are cancelled 30 years after the borrower becomes due to repay. For anyone who clears the loan in full before then, a lower threshold doesn't increase the total repaid at all. It brings the clearing date forward, and paying sooner on an RPI-linked balance can leave you slightly better off overall.
For that group the objection holds, and the freeze is a timing change rather than a cost. The question is how much of the book that group accounts for. The Department for Education's forecast runs full-time Plan 2 higher education loans out to 2074-75, and summing its rows gives roughly £174 billion repaid against roughly £288 billion cancelled. Cancellations peak at £30.5 billion in 2052-53, as the 30 year clocks run out together. Those are cash figures rather than present values, and they count pounds rather than people. Borrowers who repay for the full 30 years and are then written off pay the £566.55 on top of everything else with no offsetting saving, because the balance was never going to clear either way.
The distribution matters more than the average here, and neither figure tells you which group you're in. What decides it is your own earnings path over decades, which is exactly the thing nobody can measure in advance.
What would change these numbers
Three things, in order of how much they move.
The first is RPI. The 2027-28 gap of £1,200 is fixed, because the index it depends on was published in March 2026. The 2028-29 and 2029-30 gaps rest on the OBR's 2.9% a year, and RPI has undershot and overshot that badly in living memory. If inflation runs hotter, the freeze costs more than £566.55, because the threshold it's holding you away from would have been higher.
The second is what happens after 2030. The Department for Education's forecast has the Plan 2 threshold resuming at £30,210 in 2030-31, uprated from the frozen £29,385 rather than from the path it left. Applying that same uprating to the unfrozen path puts the counterfactual near £33,300. A gap of roughly £3,090 persists, worth about £278 a year at 9% for as long as you're repaying. On that reading the three-year freeze is a permanent step down in the threshold, and the £566.55 is the smaller half of the story.
The third is reversal. The measure was announced at Budget 2025 and takes effect in April 2027, and as of late September 2026 the consolidated text of the 2009 regulations still sets the 2027-28 threshold by the RPI formula, with the caveat legislation.gov.uk carries that revised text "may not be fully up to date". Undoing the freeze on the Plan 2 student loan threshold would take a further decision and a further amendment, and nothing here forecasts either. What a reversal would be worth is simply the table above, read the other way: £566.55 for anyone above £32,390, £166.05 on £30,000, and nothing below £29,385.
The limitations are worth stating plainly. Flat nominal salaries overstate how many people stay in one row of the table for three years. The figures cover Plan 2 only, and say nothing about Plan 1, Plan 4, Plan 5 or a postgraduate loan running alongside it. Two of the three threshold gaps are forecasts. And the arithmetic describes what the rules do, not what any individual balance ends up costing, which is a question only a full earnings history can answer. This is informational purposes only and not financial advice.
If you track your own take-home against gross pay, the same mechanism shows up in the income tax threshold freeze, which runs from April 2028 on a longer horizon. Two other places the same monthly line does work: salary sacrifice changes the contractual gross pay a payslip is built from, and RSU tax arrives as employment income that can push one month far above the £2,448 threshold.