Student Loan Shake-Up: What Plan 2 Borrowers Need to Know

The government has agreed that university applicants in England should receive clearer information about student loans before committing to them.

The announcement follows a Treasury Committee inquiry which concluded that student loans had previously been presented to young people in a misleading way.

In particular, MPs criticised past promotional material that compared repayments with a monthly mobile phone contract and played down the fact that borrowers were taking on debt.

Although the government has accepted that the information given to future students needs to improve, it has not announced any immediate changes to the amounts existing borrowers must repay.

Chapters

1. What Will Change?
2. What Hasn't Changed?
3. Who Has a Plan 2 Loan?
4. What Does this Mean for Seafarers?
5. The Position for Existing Borrowers

What Will Change?

The government and the Student Loans Company have agreed to make it clearer that student loan terms are set by legislation and may be changed by future governments and Parliament.

Guidance for prospective students will also explain more clearly how a borrower's circumstances can affect repayments over time.

Examples may include:

• Salary increases
• Moving to part-time work
• Retraining or changing career
• Taking a career break

The government does not intend to provide each student with a forecast of their total lifetime repayments.

It says that any estimate would rely on too many assumptions about future earnings and personal circumstances and could therefore be misleading.

What Hasn't Changed?

Most of the Treasury Committee's wider recommendations were rejected.

The government has not agreed to:

• Divide the cost of university equally between students and the government
• Stop using the Retail Prices Index (RPI) when calculating Plan 2 interest
• Apply the Financial Conduct Authority's Consumer Duty rules directly to student loan information

It has also stopped short of confirming whether it will reverse the freeze on the Plan 2 repayment threshold.

For the 2026/27 tax year, Plan 2 borrowers generally begin making repayments once their income exceeds £29,385

Repayments are normally charged at 9% of income above the applicable threshold.

The threshold is currently due to remain frozen for three years.

This means that, as wages rise, more borrowers may begin making repayments and existing borrowers may pay more than they would if the threshold increased with inflation.

Who Has a Plan 2 Loan?

Plan 2 student loan repayments in 2025-26 by annual income. Image credit: IFS

Plan 2 generally applies to undergraduate loans taken out by students who started a course in England or Wales between September 2012 and July 2023.

Plan 2 loans continue to be issued in Wales.

Students now starting undergraduate courses in England usually receive Plan 5 loans.

These have different terms, including a lower repayment threshold, a longer repayment period and an interest rate based on RPI without the additional interest of up to 3% that can apply under Plan 2.

What Does this Mean for Seafarers?

Seafarers should be particularly careful not to treat student loan repayments in the same way as income tax.

The Seafarers' Earnings Deduction can reduce the UK income tax due on qualifying employment earnings, but it does not automatically cancel a borrower's student loan obligations.

The way repayments are collected will depend on the individual's circumstances:

• Borrowers paid through UK payroll may have deductions taken by their employer.
• Borrowers completing a UK Self Assessment return may have a repayment calculated through that return where the relevant conditions apply.
• Those living or working overseas may be required to update the Student Loans Company directly and make repayments under its overseas rules.

Ignoring requests from the Student Loans Company can result in arrears and interest continuing to build.

Seafarers working internationally should therefore ensure that both their UK tax affairs and their student loan position are kept up to date.

The Position for Existing Borrowers

Average change in expected lifetime loan repayments. Image source: IFS

For now, the announcement is mainly about improving the information provided to future students.

It does not reduce the interest rate, repayment percentage or current threshold for existing Plan 2 borrowers.

The government has said that the student finance system remains under review.

Further changes could therefore be announced in a future Budget, but nothing should be assumed until new measures are formally confirmed.

If you work at sea and are unsure how your student loan interacts with the Seafarers' Earnings Deduction, Self Assessment or time spent overseas, Marine Accounts can help you understand the UK tax reporting position.

Questions about the loan balance, overseas repayment schedule or collection arrangements may also need to be addressed directly with the Student Loans Company.

Disclaimer: This article is intended as general information only. Student loan and tax treatment will depend on individual circumstances and the rules applying to the relevant repayment plan.