The “Graduate Tax” has changed. Find out exactly how much will disappear from your April paycheck.
If you started university in September 2023, the honeymoon period is officially over. From April 6, 2026, you are the first generation of graduates to enter the Plan 5 repayment system – and the math is significantly different from what your older siblings or colleagues are paying.
While most other student loan thresholds (Plans 1, 2, and 4) have risen slightly this year, the Plan 5 threshold is fixed at a much lower level. This means more of your salary is “at risk” of deductions.
1. The Plan 5 “Trigger” Numbers
Unlike Plan 2 (which has a 2026 threshold of £29,385), Plan 5 hits you much sooner. You only start repaying when your income exceeds:
- £25,000 per year
- £2,083 per month
- £480 per week
If you earn a penny over these amounts in your April paycheck, the Student Loans Company (SLC) will automatically deduct 9% of the difference.
2. The Calculation: How much will I lose?
The repayment isn’t 9% of your total salary; it’s 9% of everything above the £25,000 threshold.
Scenario A: The £30,000 Graduate Salary
- Annual Income: £30,000
- Amount above threshold: £5,000 (£30,000 – £25,000)
- Annual Repayment: £450 (9% of £5,000)
- Monthly Deduction: £37.50
Scenario B: The £40,000 High-Flier
- Annual Income: £40,000
- Amount above threshold: £15,000 (£40,000 – £25,000)
- Annual Repayment: £1,350
- Monthly Deduction: £112.50
3. Why Plan 5 is a “Marathon, Not a Sprint”
The lower threshold isn’t the only change. Plan 5 comes with two major strategic shifts:
- Lower Interest (The Good News): Your interest rate is set at RPI only (currently 3.2%). You aren’t being hit with the “RPI + 3%” that older graduates face. You will never pay back more than you borrowed in “real” inflation-adjusted terms.
- The 40-Year Trap (The Bad News): Your loan is only written off after 40 years, compared to 30 years for Plan 2. Because of the lower threshold and longer term, the government estimates that 65% of you will pay the loan back in full, compared to only 27% of Plan 2 borrowers.
4. What if I get a bonus in April?
If you receive a performance bonus in your April paycheck that pushes you over the £2,083 monthly limit, you will see a student loan deduction, even if your total annual salary is under £25,000.
Money Simplified Tip: If your total annual income at the end of the tax year is below £25,000, you can contact the SLC to claim a refund for those “one-off” deductions. Don’t let them keep it by default!
Next Steps: Model Your Debt-Freedom
Are you likely to be in the 65% who clear the debt, or the 35% who pay until they are 62 years old? Knowing this determines whether you should make voluntary overpayments or ignore the debt entirely.
Use our 2026/27 Student Loan Early Repayment Planner to see your “Date of Freedom.
