Understanding the New Plan 5 Student Loan: What Young People Need to Know in 2026

Designed for students who started university from September 2023 onwards, Plan 5 will affect how young adults borrow, repay, and experience the cost of higher education from April 2026 onwards.

At Money Smart Kids, we’re committed to helping young people make informed, confident financial decisions. So let’s break down what Plan 5 means, who it applies to, and why it matters.

What Is Plan 5?

Plan 5 is the new student loan repayment plan for students in England who began eligible higher education courses from August/September 2023. It represents a major overhaul of the previous Plan 2 loans and reshapes how graduates will repay across their working lives.

This loan covers:

• Tuition fees
• Maintenance loans (living costs)

Repayments begin the April after leaving university, but for PAYE earners, the first repayments will officially start from 6 April 2026.

How Much Will Graduates Repay?

Under Plan 5, repayments are relatively simple:

📌 Repayment Threshold

You repay 9% of your income above £25,000 per year, or:

• £2,083 per month
• £480 per week
• This threshold is lower than Plan 2, meaning graduates start repaying sooner.

📌 Repayment Rate

Repayments remain at 9% of income over the threshold, deducted automatically through payroll.

📌 Example

If you earn £32,000:

• Income above threshold: £7,000
• 9% repayment = £630 per year
• Around £52.50 per month
  
  

What About Interest?

This is one of the biggest changes — and one many young people won’t expect.

Under Plan 5, interest is set at RPI only, with no additional percentage added.

This makes borrowing cheaper for high earners compared to previous systems.

How Long Until the Loan Is Written Off?

Plan 5 loans are written off 40 years after the April in which you become eligible to repay.

This is 10 years longer than Plan 2, meaning most graduates will repay for a much larger portion of their working lives.

Who Will Pay More Under Plan 5?

Financial experts have highlighted that although the system looks simple, the long‑term cost can be significant. Some analyses suggest many graduates will pay over 50% more than under Plan 2, with lower and middle earners especially affected due to the lower threshold and extended repayment period.

Why Has Plan 5 Been Introduced?

The government’s goal is to create a system that is:

• More financially sustainable
• Closer to traditional loan repayment structures
• Better able to recoup borrowing from graduates who can afford it
• Simpler for employers and payroll systems

Plan 5 will also become the default plan type from 2026/27 when employers are unsure of an employee’s loan type.

What Does Plan 5 Mean for Young Adults?

For many students, Plan 5 represents both opportunities and challenges.

👍 Potential Benefits

• Lower interest rates
• Easier to understand repayment system
• Lower cost for high earners

👎 Potential Downsides

• More people will repay for the full 40 years
• Lower earners will repay for longer
• Lower threshold means earlier repayment begins

This makes financial education more important than ever — which is exactly where organisations like Money Smart Kids can help.

How We’re Supporting Young Adults

At Money Smart Kids, we help schools and colleges explain:

• Student loans
• Budgeting for university
• Independent living
• Credit, borrowing and long-term financial planning

Our KS5 workshops already include detailed sessions on student loans, budgeting, interest, employment, car finance, and real‑world financial decision-making — all essential for young adults navigating Plan 5.

Financial literacy is no longer optional. With systems like Plan 5 shaping the next generation’s financial future, education must start early, be clear, and be accessible.

Final Thoughts

Plan 5 is a major change — one that will shape the financial lives of graduates for decades. Whether students choose university, apprenticeships or employment, understanding how student loans work has never been more important.

At Money Smart Kids, we’re proud to play our part in helping young adults step confidently into their futures.

If you’d like a companion blog, social media post, or downloadable guide for parents/students, I’d be happy to create one!