Difference between Plan 5 and Plan 2 for loan repayments

Nebbit

My daughter did her first degree between 2019 and 2022. She then worked in low income jobs until 2024, making no loan repayments to her Plan 2 loan. In 2024 she started a full time PGCE course which was funded under Plan 5 loan for tuition fee only (no living expenses required.) She is now about to start a teaching job which will incur repayments. Her total debt is some £79,000 due to the very high interest rates applied recently. She is thinking of making a partial repayment of some £9 - £10K, probably to eliminate the Plan 5 loan completely. However is there any advantage in instead applying this to the earlier Plan 2 loan? I should add that she has had a letter to show to her employer stating that her 'Active Type Plan' is Plan 5. Does this mean that the entire debt is now being treated as Plan 5?

Ed-1

Nebbit said:

My daughter did her first degree between 2019 and 2022. She then worked in low income jobs until 2024, making no loan repayments to her Plan 2 loan. In 2024 she started a full time PGCE course which was funded under Plan 5 loan for tuition fee only (no living expenses required.) She is now about to start a teaching job which will incur repayments. Her total debt is some £79,000 due to the very high interest rates applied recently. She is thinking of making a partial repayment of some £9 - £10K, probably to eliminate the Plan 5 loan completely. However is there any advantage in instead applying this to the earlier Plan 2 loan? I should add that she has had a letter to show to her employer stating that her 'Active Type Plan' is Plan 5. Does this mean that the entire debt is now being treated as Plan 5?

No, the employer has to apply the lowest repayment threshold across any plan types held by the employee. So as £25k is the lower of the thresholds, that is the threshold that applies (although plan 5 does not enter repayment until April 2026 at the earliest so until April they should be applying the Plan 2 threshold).

Plan 2 rules apply to the plan 2 part of the loan balance (30 year write off, up to RPI+3% interest). There's little to no prospect of the plan 2 loan being cleared within the next 27 years so any extra payments to that is throwing money away. The plan 5 loan lasts another 40 years but only accrues interest at RPI so again, I wouldn't be paying it off any quicker than needed.

Nebbit

It's baffling how an interest rate which we are told is 3% is in practice far higher. Interest has been compounding at an alarming rate

silvercar

Nebbit said:

It's baffling how an interest rate which we are told is 3% is in practice far higher. Interest has been compounding at an alarming rate

The interest rate is RPI + 3%, not 3%.

before making a partial repayment I would be looking at what that money could be used for eg a home deposit or even a pension.