Ambiguity in repayment rules for borrowers with both Plan 2 and Plan 5 student loans

liamcam56

I’m want to highlight what appears to be ambiguity in official guidance regarding student loan repayments for borrowers who hold both Plan 2 and Plan 5 loans.

Government guidance states that borrowers with multiple plan types repay 9% of income above the lowest threshold, but it is unclear how repayments are allocated between loans when thresholds differ. Some sources suggest repayments are pooled and allocated proportionally, while others indicate that repayments are effectively split by income bands (e.g. income between the Plan 5 and Plan 2 thresholds going solely toward Plan 5, and income above the Plan 2 threshold going toward Plan 2).

This distinction materially affects financial decision-making for people like me who must choose whether to self-fund education, take out additional loans, or invest savings instead. Without clear, worked examples from the government, it is difficult for borrowers to make informed choices.

This issue is likely to affect a growing number of people as Plan 5 cohorts overlap with existing Plan 2 borrowers. I believe clearer guidance or an explainer article would be extremely valuable.

silvercar

@liamcam56 I’ll move this to the student board. I know this has been mentioned in other threads.

silvercar

Explained here: https://forums.moneysavingexpert.com/discussion/6557351/plan-2-and-plan-5-loans-current-pgce-students-repayment-rules-costing-10-000s/p1

silvercar

The legislation here https://www.legislation.gov.uk/uksi/2022/1335/regulation/18 explains that everything between thresholds goes towards the loan with the lower threshold. Everything above the higher threshold goes to that loan.

The proportionality distribution rules apply when someone has more than one loan of the same plan type and therefore the same threshold.