Understanding the Plan 2 loan repayment system
Think tank: HEPI
Author(s): Dr Gavan Conlon; Maike Halterbeck; Jack Booth; Pietro Patrignani
April 13, 2026
This report from UK think tank HEPI offers an alternative model for student loans, which would be cost-neutral for the Treasury.
New research by London Economics has found that following various changes to student loan terms, implemented since early 2022, the Treasury are making a surplus of £679 million for the 2022/23 cohort of undergraduate student entrants in England. The research also found that the Government’s changes have had a greater adverse impact on lower- and middle-income earners, while higher earners have been much less affected.
Young people heading to university take out student loans to cover their tuition fees as well as their living expenses through a maintenance loan. For Plan 2 students (from 2012/13 to 2022/23 in England), interest starts to accumulate while they are at University, at RPI+ 3%. They pay back 9% of their earnings over a certain threshold, which the Chancellor has recently frozen until April 2030. The freezing of this threshold will reduce the Treasury cost of student loans by £1.3 billion for the 2022/23 cohort alone. The National Union of Students have likened the Chancellor freezing the thresholds to the behaviour of a loan shark.
In response to these new findings, the National Union of Students and the Higher Education Policy Institute are today publishing an alternative model for student loans, which would be cost-neutral for the Treasury, i.e. the Exchequer cost of funding the cohort is close to zero.
