Graduates need to earn £63k to begin to reduce student debt

Graduates who took out controversial “Plan 2” student loans need to earn £63,600 a year if they want to see their balance decrease, a new government analysis has found.

According to the Department for Education (DfE) forecast of graduates’ earnings and lifetime repayments, published on 27 August, a Plan 2 borrower earning below this amount will not make repayments higher than the level of interest being accrued.

The DfE data shows a Plan 2 borrower with an average loan balance of £52,100 who earns the UK’s average annual salary of £39,039 would see their loan balance actually increase by £1,692 a year.

The analysis predicts that just under a quarter (24 per cent) of those earning around the average salary 10 years after repayments kick in are predicted to pay off their Plan 2 loans in full.

Meanwhile, Plan 5 borrowers – those who began degrees after 1 August 2023 – would need to earn £43,625 in 2026-27 to see their average balance of £45,800 decrease.

The DfE has released the analysis days after campaigners reiterated calls for a rethink of the student loans system, which many have likened to a de facto tax on graduates.

Under Keir Starmer, then-chancellor Rachel Reeves froze the repayment threshold for Plan 2 loans at £29,385 for three years from April 2027 – a move campaigners said added to anger over the burden the loans place on graduates. Graduates repay 9 per cent of earnings above the threshold.

Campaign group Rethink Repayment has been lobbying for politicians to unfreeze the threshold and reduce the repayment rate from 9 to 5 per cent.

Some suspect Andy Burnham is more likely to heed the pressure than his predecessor, with the new prime minister’s education secretary Lucy Powell recently claiming student debt is “at the top” of her in-tray.

Meanwhile, more than 120 politicians have written to the chancellor, John Healey, demanding an “urgent review” of student loan repayments.

When it comes to forecasting how likely graduates are to pay off what they’ve borrowed, even those earning more than £80,000 a decade after they start repayments are not 100 per cent guaranteed to totally vanquish their balance.

Instead, 91 per cent of this Plan 2 cohort will entirely shift the debt, the analysis predicts, though those earning more money more quickly into the repayment process fare better.

For instance, 83 per cent of earners reaching more than £80,000 a year just three years after they begin addressing the debt will do so.

Just 20 per cent of those in the lowest earning band (making up to £10,000 a year) three years after they begin paying off the debt will clear their loans.

In contrast, nearly half of Plan 5 borrowers earning the same amount three years after graduation are forecast to fully repay their loans – with the DfE analysis reporting that this shows “low earnings soon after graduation are a fairly weak predictor of earnings across the borrower’s entire repayment period”.

Despite the ongoing conversation about the loan burden, so far, it seems prospective students have not been deterred from taking on the cost.

The total number of borrowers, across both undergraduate and postgraduate programmes, has risen each year since 2016-17.

Just under a decade ago, 4,841,000 people signed up to receive a loan from Student Finance England. In 2025-26, 7,364,500 did so.

georgia.luckhurst@timeshighereducation.com