What Is A Plan 1 Or Plan 2 Student Loan? (2024)

When it comes to financing higher education, you’re probably going to need a student loan. This is because - however great attending university is - it comes with a hefty price tag!

However, when it comes to student loans, it’s important to remember they’re not all the same.

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In fact, when it comes to these handy loans, there are a few different types people can borrow. But don’t sweat it, this is pretty easy to get your head around. And we’re here to break this down as simply as we can!

What's The Difference Between Plan 1 and 2 Student Loans?

Depending on when and where you took out your student loan, the plan you’re on will vary.

Plan 2 student loans are those taken out on or after September 2012 to July 2023 in England or Wales. You’ll be on Plan 2 if:

  • You’re studying an undergraduate course
  • You’re studying for a Postgraduate Certificate of Education (PGCE)
  • You take out an Advanced Learner Loan
  • You take out a Higher Education Short Course Loan

Do we have any recent grads in the house? If this is you, you’ll probably be on Plan 2!

Alternatively, anyone that withdrew a loan in England, Wales or Northern Ireland before September 2012 is on Plan 1.

Besides Plan 1 and 2 student loans, there are also Plans 4 and 5. Don’t worry, these are the last you need to remember!

Any undergraduate or postgraduate who borrowed a student loan in Scotland will be on Plan 4. Alternatively, anyone starting their course after August 2023 will be on Plan 5.

Phew, that was all pretty simple, right? If you are still worrying and want to double-check, the government or SLC website is just a couple of clicks away!

How Do Plan 1 Student Loans Work?

So, anyone that took out a student loan in England, Wales or Northern Ireland before September 2012 is on Plan 1.

But how exactly do Plan 1 loans work, and what makes them different to Plan 2?

Of course, the primary difference in plans is the year and country student loans were withdrawn.

But other main differences include the repayment thresholds, interest rates, and when these loans are written off.

As opposed to traditional loans, student loans are income-contingent. This means that they’re based on a borrower’s income. Once a borrower's salary goes above a certain figure, they need to start repaying their student loan. Urgh, it's a drag we know, but rules are rules!

For Plan 1 loans, the annual repayment threshold is £22,015. This means the monthly threshold is £1,834.

While repaying your loan every month may sound bad enough, there’s more! Once over the repayment threshold, you’ll also need to pay interest. Fun right - not!

For anyone on a Plan 1 student loan, the interest rate is 5.5%.

The final difference is when these loans get written off. Or, in other words, when you finally have freedom - at last!

For Plan 1 student loans, if you took out your loan before September 2006, it will be written off when you’re 65. For those who took one out after this point, your loan will be written off 25 years after the April you were first due to repay.

How Do Plan 2 Student Loans Work?

For people on a Plan 2 student loan, things work a little differently.

When it comes to the repayment thresholds on Plan 2 student loans, it's actually quite a lot higher than Plan 1. The yearly threshold on Plan 2 student loans is £27,295, meaning the monthly threshold is £2,274

And the interest rate on Plan 2 student loans are different as well. Unfortunately, it’s significantly higher than that on Plan 1 student loans. Sucks, right?

The interest rate on Plan 2 student loans are 7.1%. Yikes, sorry Plan 2 borrowers!

Last but not least is the write-off date. Plan 2 student loans are written off 30 years after the April you were first due to repay.

Conclusion

Student loans are never fun to discuss. However useful they are, thinking of them can just remind you of all the debt you’ve left to repay.

Nevertheless! It’s important to understand the ins and outs of these loans. And it's particularly important to know which student loan plan you’re on.

This will help to ensure you don’t make any slips ups when it comes to repaying your loan. And, believe us, fewer mistakes will make this whole process a lot less stressful!

What Is A Plan 1 Or Plan 2 Student Loan? (2024)

FAQs

What is Plan 1 and Plan 2 student loans? ›

Plan 2 refers to a student loan taken out from September 2012 onwards, in England or Wales. Older loans (from England or Wales) and loans taken out in Northern Ireland, are called plan 1 loans.

Is Plan 1 or Plan 2 better? ›

Plan 1 loans work differently to Plan 2 loans

First of all, with Plan 1 loans you borrow less because tuition fees tend to be lower or non-existent than the Plan 2 loans. You also have a much lower interest rate, so the debt won't grow as quickly, and you repay much more.

What does student loan plan 4 mean? ›

If you're a Scottish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1 September 1998, you'll be on repayment Plan 4. This means you'll pay 9% of the income you earn over the threshold to the Student Loan Company (SLC). This percentage stays the same if your salary rises.

How do I know what student loan repayment plan I have? ›

Your loan servicer will provide you with a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment. Your billing statement will tell you how much to pay. Your monthly payment amount depends on your repayment plan.

How do I know if I have a Plan 2 student loan? ›

If you started your course on or after 1 September 2012

You're on: Plan 2 if you studied an undergraduate course or a Postgraduate Certificate of Education (PGCE) a Postgraduate Loan plan if you studied a postgraduate master's or doctoral course.

What is Plan B for student loan forgiveness? ›

On April 8, 2024, President Joe Biden shared new details of a 'plan B' of the broad student debt cancellation plan struck down by the Supreme Court in June 2023. The new plan primarily benefits borrowers by reducing or eliminating the interest that can make student loan balances balloon.

How do I know what type of student loan I have? ›

You can identify your loan types by logging on to StudentAid.gov and selecting “My Aid” in the dropdown menu under your name. In the “Loan Breakdown” section, you'll see a list of each loan you received. You'll also see loans you paid off or consolidated into a new loan.

What is the threshold for Plan 2? ›

Plan 1 and Plan 2 loans: repayment allocation

For the 2024/25 tax year, the repayment thresholds are as follows: Plan 1 loans: £24,990. Plan 2 loans: £27,295.

Which repayment plan is best for student loans? ›

Best repayment option: standard repayment. On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you'll pay less in interest and pay off your loans faster than you would on other federal repayment plans.

What is student loan plan 5? ›

Repayment plan 5 is a new repayment plan, being introduced for students starting undergraduate and Advanced Learner Loan courses on or after 1 August 2023. You won't be expected to make repayments to your plan 5 student loan until April 2026 at the earliest, even if you leave your course early.

Are student loans forgiven after 20 years? ›

All borrowers on SAVE receive forgiveness after 20 or 25 years, depending on whether they have loans for graduate school. The benefit is based upon the original principal balance of all Federal loans borrowed to attend school, not what a borrower currently owes or the amount of an individual loan.

What is the new student loan forgiveness plan? ›

The PSLF Program forgives the remaining balance on your Direct Loan after you've made the equivalent of 120 qualifying monthly payments while working full time for a qualifying employer.

Which student loans are forgiven? ›

If you have loans that have been in repayment for more than 20 or 25 years, those loans may immediately qualify for forgiveness. Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones.

How to get the lowest student loan payment? ›

How to lower student loan payments
  1. Apply for an income-driven repayment plan.
  2. Sign up for a graduated repayment plan.
  3. Consider an extended repayment plan.
  4. Consolidate your loans.
  5. Move to another state.
  6. Enroll in automatic payments.
  7. Get help from your employer.
  8. Refinance your student loans.

How do I pay off my student loans faster? ›

9 tips for paying off student loans fast
  1. Make additional payments.
  2. Set up automatic payments.
  3. Get a part-time job in college.
  4. Stick to a budget.
  5. Consider refinancing.
  6. Apply for loan forgiveness.
  7. Lower your interest rate.
  8. Take advantage of tax deductions.
Feb 28, 2024

Do student loans go away after 7 years? ›

Do student loans go away after 7 years? While negative information about your student loans may disappear from your credit reports after seven years, the student loans will remain on your credit reports — and in your life — until you pay them off.

Which type of student loan is the best? ›

A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college.

References

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