By the UKPropertyCalculator team • Published 19 February 2026 • Last reviewed 4 October 2026
Most articles on this answer it with a slogan. Either the student loan is "really a graduate tax, so ignore it", or debt is debt and you should clear it first. Both are wrong often enough to cost people real money, because the answer depends almost entirely on which repayment plan you are on and roughly what you will earn. A Plan 5 graduate on £40,000 and a Plan 2 graduate on £40,000 are in genuinely opposite positions, and a single verdict cannot cover both.
So this piece does the arithmetic rather than asserting a view. Every threshold, rate and write-off period below comes from GOV.UK for the current year, and every worked figure is calculated rather than inherited. If you only read one section, make it whether overpaying actually saves you anything, because that is where the two plans separate.
This is not optional background. The five plans have different thresholds, different interest rules and write-off periods ranging from 25 to 40 years, and the right decision flips between them. Figures below are the 2026-27 thresholds and the rates that apply from 1 September 2026 to 31 August 2027.
| Plan | Who is on it | Threshold | Rate | Interest | Written off |
|---|---|---|---|---|---|
| Plan 1 | England and Wales, course started before 1 Sept 2012. Also Northern Ireland. | £26,900 | 9% | Lower of RPI or Bank Base Rate + 1%, currently 4.1% | 25 years |
| Plan 2 | England and Wales, course started between 1 Sept 2012 and 31 July 2023. | £29,385 | 9% | RPI to RPI + 3% depending on income, capped at 6% | 30 years |
| Plan 4 | Scotland (student loans from the Student Awards Agency Scotland). | £33,795 | 9% | Lower of RPI or Bank Base Rate + 1%, currently 4.1% | 30 years |
| Plan 5 | England, undergraduate course started on or after 1 August 2023. | £25,000 | 9% | RPI only, 4.1% | 40 years |
| Postgraduate | Master's or doctoral loans, England and Wales. | £21,000 | 6% | RPI + 3%, capped at 6% | 30 years |
Three details here get misreported constantly. The RPI figure in use is 4.1%, measured in March 2026, not the 7% that circulated during the 2022 and 2023 inflation spike. Plan 5 charges RPI with no margin at all, so a Plan 5 balance grows more slowly than a Plan 2 one. And Plan 5 runs for 40 years, not 30, which is the single most consequential difference between the two plans.
If you hold both an undergraduate loan and a Postgraduate Loan, you repay both at once: 9% above your undergraduate threshold and 6% above £21,000, stacked. That is a detail worth holding on to, because it changes the mortgage arithmetic later.
One forward-looking note. The Plan 1 threshold has already been confirmed to rise to £28,005 from 6 April 2027. Thresholds move, and as the sensitivity test further down shows, that matters more to this decision than the interest rate does.
The mechanic that makes this question unusual is that your monthly repayment is a function of your salary and nothing else. You repay 9% of income above your plan's threshold, collected through PAYE alongside tax and National Insurance. A £15,000 balance and a £75,000 balance on the same salary produce an identical deduction.
| Gross salary | Plan 1 | Plan 2 | Plan 4 | Plan 5 | Postgrad |
|---|---|---|---|---|---|
| £30,000 | £23 | £5 | £0 | £38 | £45 |
| £35,000 | £61 | £42 | £9 | £75 | £70 |
| £40,000 | £98 | £80 | £47 | £112 | £95 |
| £50,000 | £173 | £155 | £122 | £188 | £145 |
| £60,000 | £248 | £230 | £197 | £262 | £195 |
| £80,000 | £398 | £380 | £347 | £412 | £295 |
Monthly deductions, rounded. Note that a Plan 5 graduate on £40,000 hands over £112 a month against £80 for a Plan 2 graduate on the same salary, purely because the Plan 5 threshold is £4,385 lower.
Stacked on income tax and National Insurance, the repayment turns a pay rise into something much less exciting than it looks. For 2026-27 the personal allowance is £12,570, the basic rate band runs to £50,270 at 20%, and employee National Insurance is 8% on earnings between roughly £12,570 and £50,270 and 2% above that.
| Band | Tax | NI | Student loan | You keep |
|---|---|---|---|---|
| Basic rate, undergraduate loan only | 20% | 8% | 9% | 63% |
| Basic rate, undergraduate plus postgraduate | 20% | 8% | 15% | 57% |
| Higher rate, undergraduate loan only | 40% | 2% | 9% | 49% |
| Higher rate, undergraduate plus postgraduate | 40% | 2% | 15% | 43% |
A graduate with both loans who crosses into the higher rate band keeps 43 pence of the next pound. That is the real reason the 9% feels heavier than it reads, and it is also why some people conclude the loan must be worth clearing. The next two sections test whether it is.
Less than people fear, and in a specific way worth understanding rather than hand-waving.
Lenders do not assess your student loan balance. They cannot: it is not a contractual credit commitment they can call in, and it does not appear on your credit file. What they assess is affordability. FCA rules require a lender to take account of "the income of the customer, net of income tax and National Insurance" alongside your committed expenditure and basic essential living costs. A student loan repayment is neither income tax nor National Insurance, so it is not automatically netted off under that rule, and it is not a contractual credit commitment either. In practice lenders handle it as a payroll deduction that reduces the money available to service a mortgage, and the large high-street affordability calculators ask for it directly.
The useful way to size the effect is to ask how much borrowing that monthly deduction would have serviced. At the 90% LTV average five-year fix of 5.63% over 25 years, every £1 a month of payment supports about £161 of loan.
| Plan, at £45,000 salary | Deduction | Borrowing it would have serviced |
|---|---|---|
| Plan 4 (Scotland) | £84/mo | £13,500 |
| Plan 2 | £117/mo | £18,800 |
| Postgraduate only | £120/mo | £19,300 |
| Plan 1 | £136/mo | £21,800 |
| Plan 5 | £150/mo | £24,100 |
| Plan 2 plus Postgraduate | £237/mo | £38,100 |
At £60,000 the same exercise gives £36,900 for Plan 2, £42,200 for Plan 5 and £68,300 for someone carrying Plan 2 and a Postgraduate Loan together. The stacked case is the one that genuinely bites. A single undergraduate loan costs you something like a fifth of a deposit's worth of borrowing capacity; two loans at a higher salary can cost you the price of a small flat's deposit in capacity terms.
You can see the effect directly in our mortgage calculator by reducing your income by the annualised deduction.
This is the question the slogans skip, so here is a model. The method, stated plainly so you can disagree with it:
"Net effect" is what you are better or worse off by, in total cash terms, after paying £20,000 off the balance today.
| Starting salary | Repaid over 30 years | Balance written off | Net effect of a £20,000 overpayment |
|---|---|---|---|
| £32,000 | £57,700 | £152,900 | −£20,000 |
| £40,000 | £91,900 | £95,000 | −£3,200 |
| £55,000 | £114,400 | £0, clears in year 25 | +£46,800 |
| £80,000 | £78,100 | £0, clears in year 13 | +£15,200 |
Read the top row carefully. On £32,000 the loan is written off with £152,900 still outstanding. Repayments are driven by salary alone, so they are identical whether you overpay or not, and the £20,000 simply disappears into a balance that was never going to be collected. That is not a bad return. It is a 100% loss.
The £40,000 row is nearly as bad and much more deceptive, because the overpayment does change something: it brings the clearance date forward into year 27, inside the 30-year window. The borrower ends up repaying £16,800 less through payroll, having paid £20,000 up front. Net position: £3,200 worse off.
The £55,000 row is where overpaying wins biggest, and the reason is worth understanding. That borrower is on track to just clear the loan near the end of the 30 years, meaning they pay the maximum possible amount of compound interest along the way. Knocking £20,000 off the balance early removes eleven years of 6% interest. The highest earner in the table gains less, not more, because they clear the loan quickly anyway and never accrue much interest.
| Starting salary | Repaid over 40 years | Balance written off | Net effect of a £20,000 overpayment |
|---|---|---|---|
| £32,000 | £127,200 | £66,100 | +£5,900 |
| £40,000 | £138,900 | £0, clears in year 35 | +£43,900 |
| £55,000 | £101,700 | £0, clears in year 22 | +£23,300 |
| £80,000 | £83,200 | £0, clears in year 13 | +£10,300 |
Every row is positive, which is the opposite of the Plan 2 picture, and the £40,000 row is remarkable: a borrower on a perfectly ordinary graduate salary repays £138,900 on a £60,000 loan across 40 years. Three things combine to produce that. The threshold is £25,000, so repayments start early and stay substantial. The term is 40 years rather than 30. And although 4.1% is the lowest headline rate of any plan, applying it for four decades to a balance that only starts falling in year 13 is brutal.
So the Plan 5 cohort, the one most likely to be told by older articles to ignore the loan because it is "just a graduate tax", is in fact the cohort for whom overpaying is most likely to pay. The advice written for Plan 2 graduates does not transfer.
Now the alternative use of the money, on a realistic purchase rather than a round number. The average first-time buyer in Great Britain paid £229,302 in July 2026, so take a £230,000 flat. A first-time buyer pays no stamp duty at that price, since the relief covers everything to £300,000.
In early October 2026 the average five-year fix was 6.02% at 95% LTV and 5.63% at 90% LTV. Moving £20,000 from a loan overpayment into the deposit takes you from a 5% deposit to a 13.7% deposit, which crosses out of the 95% shelf and into the 90% band:
| £11,500 deposit (5%) | £31,500 deposit (13.7%) | |
|---|---|---|
| Loan | £218,500 | £198,500 |
| LTV band priced at | 95% | 90% |
| Rate | 6.02% | 5.63% |
| Monthly payment, 25 years | £1,410 | £1,234 |
| Interest over the term | £204,641 | £171,827 |
| Equity after 5 years, prices flat | £33,442 | £52,449 |
So the same £20,000 saves £176 a month and roughly £32,800 of mortgage interest over the term. Compare that against the loan column: for a Plan 2 borrower under £50,000 the overpayment saves between nothing and a negative amount, so the deposit wins outright. For the Plan 5 borrower on £40,000 the overpayment's £43,900 does beat the deposit's £32,800 on paper.
Two things stop that being the end of it. The £43,900 arrives over 35 years, in the form of payroll deductions you never make, while the £176 a month starts on your first mortgage payment. And the Plan 5 figure collapses towards £35,500 or lower once thresholds rise, which they will. Put a reasonable discount on a benefit spread across three and a half decades and the two options converge.
Then one fact breaks the tie. GOV.UK is unambiguous: "You cannot get a refund of any extra repayments you make." The same page adds its own warning, which is unusual for GOV.UK: "You might not benefit from making extra repayments because your loan will be written off at the end of the loan term." Deposit savings sitting in a cash ISA can be redeployed if you lose your job, if the purchase falls through, or if you decide to move cities. £20,000 sent to the Student Loans Company is gone whatever happens next.
Articles making the case for buying often reach for a version of this: put £20,000 into a £200,000 house, see 4% growth, and you have made £8,000, a 40% return on your cash. The arithmetic is right and the framing is incomplete in two ways worth naming.
First, 4% is not the current market. UK house prices rose 1.4% in the year to July 2026, and London prices fell 3.3%. Leverage magnifies both directions: on a £400,000 purchase with a 5% deposit, five more years at London's current rate would put the owner in negative equity. We work that case through in How much deposit for a £400,000 house.
Second, the gross figure ignores costs. Stamp duty, conveyancing, survey, and roughly 1.5% plus VAT in agent fees when you sell mean a leveraged gain needs to clear several thousand pounds of friction before it is real. None of this argues against buying. It argues against quoting a 40% return as though it were a savings rate.
In order, and this order holds for every plan:
What nobody should do is overpay a Plan 2 loan on a middling salary because the balance on the portal is unpleasant to look at. That is the specific case where the money does nothing at all.
Reduce your income by your annual student loan deduction and see what it does to borrowing capacity, then compare buying against renting on your actual rent.
Mortgage Calculator Buy vs Rent CalculatorOnly if the overpayment clears the loan entirely. Your monthly repayment is 9% of income above your plan threshold, so it is set by your salary and not by your balance. Paying £20,000 off a £50,000 balance changes your monthly deduction by exactly £0, which means it changes what a lender will offer you by nothing either. Clearing the loan outright removes the deduction and does lift your borrowing capacity.
Plan 1 is £26,900 a year, Plan 2 is £29,385, Plan 4 is £33,795 and Plan 5 is £25,000. You repay 9% of income above the threshold on all four. A Postgraduate Loan has a £21,000 threshold and a 6% rate. The Plan 1 threshold has already been confirmed to rise to £28,005 from 6 April 2027.
For the year from 1 September 2026 the RPI figure used is 4.1%. Plan 5 charges RPI only, so 4.1%. Plan 1 charges the lower of RPI or 1% above Bank Base Rate, currently 4.1%. Plan 2 varies with income between RPI and RPI plus 3%, but is capped at 6% until 31 August 2027. A Postgraduate Loan is RPI plus 3%, also capped at 6% over the same period.
Plan 1 loans taken out on or after 1 September 2006 are written off 25 years after the April you were first due to repay. Plan 2, Plan 4 and Postgraduate Loans are written off after 30 years. Plan 5 loans, for anyone who started an undergraduate course in England from August 2023, are written off after 40 years.
No. GOV.UK states plainly that you cannot get a refund of any extra repayments you make. That is different from PAYE over-deductions, which the Student Loans Company will refund if too much was taken through payroll. A voluntary lump sum is irreversible, which is the main reason to fund your deposit first: deposit savings can be redirected and a loan overpayment cannot.
Not before buying, but Plan 5 is the plan where overpaying eventually makes sense. Plan 5 has a lower threshold of £25,000, a 40-year term and interest at RPI only, so a middling earner is likely to repay the whole balance plus substantial interest. In our modelling, a Plan 5 borrower on £40,000 with a £60,000 balance saved about £43,900 of lifetime repayments from a £20,000 overpayment. The order still matters: emergency fund, then deposit, then the loan.
Loan trajectories were modelled annually with repayments of 9% of salary above the 2026-27 threshold, salary growth of 3% a year, interest as described in each table, and thresholds held at current cash values unless the sensitivity note states otherwise. Mortgage figures use the standard repayment amortisation formula over 25 years at the quoted rate. These are worked examples for a specific set of assumptions, not projections of your own position, and this article is information rather than financial advice. See our Disclaimer.