Student loans in the UK are fundamentally different from most other debts. Understanding how repayment works - and particularly whether you should make overpayments - can save you thousands of pounds and reduce unnecessary financial stress. This comprehensive guide covers all five plan types, repayment strategies, and the controversial reality that most graduates never fully repay their loans.
How UK Student Loan Repayment Works
UK student loans operate on an income-contingent basis: you only repay when you earn above a certain threshold, and repayments are based on what you earn, not what you owe.
Key principles:
- Repayments deducted automatically through PAYE if employed
- 9% of income above threshold (6% for postgraduate loans)
- No repayments if you earn below threshold
- Any outstanding balance written off after 25-40 years (depending on plan)
- Interest charges apply while studying and after graduation
This is fundamentally different from commercial loans - missing payments doesn't affect your credit score, and you're never chased for repayment if unemployed or earning below threshold.
Use our Student Loan Calculator to see your exact monthly repayments based on salary and plan type.
The Five Student Loan Plans Explained
Plan 1 (England/Wales pre-2012, Scotland, Northern Ireland)
Applies to: Students who started before September 2012 in England/Wales, or all Scottish/NI students
2025/26 Repayment Terms:
- Threshold: £24,990/year (£2,082/month, £480/week)
- Repayment rate: 9% on income above threshold
- Interest rate: RPI or 1%, whichever is lower (currently 1%)
- Write-off: At age 65, or 25 years after April you were first due to repay
Example: Earning £35,000
- Income above threshold: £35,000 - £24,990 = £10,010
- Annual repayment: £10,010 × 9% = £901
- Monthly repayment: £75
Plan 2 (England/Wales post-2012)
Applies to: English/Welsh students who started between September 2012 and July 2023
2025/26 Repayment Terms:
- Threshold: £27,295/year (£2,274/month, £525/week)
- Repayment rate: 9% on income above threshold
- Interest rate: RPI + 0-3% based on income (capped at 7.3% for 2025/26)
- Write-off: 30 years after April you were first due to repay
Interest bands:
- Earning under £27,295: RPI only (4.3%)
- Earning £27,295-£49,130: RPI + up to 3% (scales with income)
- Earning over £49,130: RPI + 3% (7.3%)
Example: Earning £40,000
- Income above threshold: £40,000 - £27,295 = £12,705
- Annual repayment: £12,705 × 9% = £1,143
- Monthly repayment: £95
This is the most controversial plan - high interest rates mean many graduates see their balance grow despite making payments.
Plan 4 (Scotland post-1998)
Applies to: Scottish students who started after 1998
2025/26 Repayment Terms:
- Threshold: £31,395/year (£2,616/month, £604/week)
- Repayment rate: 9% on income above threshold
- Interest rate: RPI only (4.3%)
- Write-off: 30 years after April you were first due to repay
Scottish graduates have the highest threshold and lower interest than Plan 2.
Plan 5 (England/Wales post-2023)
Applies to: English/Welsh students who started from August 2023 onwards
2025/26 Repayment Terms:
- Threshold: £25,000/year (£2,083/month, £481/week)
- Repayment rate: 9% on income above threshold
- Interest rate: RPI only (4.3%)
- Write-off: 40 years after April you were first due to repay
Plan 5 represents a significant shift - lower interest but longer repayment period and lower threshold.
Postgraduate Loan
Applies to: Master's and doctoral loan borrowers
2025/26 Repayment Terms:
- Threshold: £21,000/year (£1,750/month, £404/week)
- Repayment rate: 6% on income above threshold
- Interest rate: RPI + 3% (7.3%)
- Write-off: 30 years after April you were first due to repay
Important: Postgraduate loan repayments are made IN ADDITION to undergraduate repayments if you have both.
Example: Earning £50,000 with Plan 2 undergraduate + Postgraduate loans
- Plan 2: 9% on (£50,000 - £27,295) = £2,043
- Postgraduate: 6% on (£50,000 - £21,000) = £1,740
- Total annual repayment: £3,783 (£315/month)
Combined repayment rates can reach 15% of income above the lower threshold.
How Interest Works on Student Loans
Interest accrues from the day your first payment is made to your university - not from when you graduate.
While studying:
- Plan 1: RPI (currently 4.3%)
- Plan 2: RPI + 3% (7.3%)
- Plan 4: RPI (4.3%)
- Plan 5: RPI (4.3%)
- Postgraduate: RPI + 3% (7.3%)
After graduating:
- Interest rates vary by plan and income (see above)
- Interest is calculated daily and added to your balance
- No penalty for "missing" payments - you just pay based on income
The controversial truth: For Plan 2 borrowers, interest often exceeds repayments, meaning your balance grows despite making payments. This is by design - the system assumes most graduates won't repay in full.
Example: Plan 2 graduate with £50,000 debt earning £35,000: - Annual interest at 6%: £3,000 - Annual repayments: £695 - Balance increases by £2,305/year
This continues until either your salary increases significantly or the loan is written off after 30 years.
Should You Make Overpayments?
This is the most important decision for student loan borrowers, and the answer depends entirely on your circumstances.
The key question: Will you repay your loan in full before write-off?
If NO (most people): Don't make overpayments. You're essentially donating money to the government that would have been written off anyway.
If YES (high earners only): Overpayments might save you interest, but compare returns with other uses of that money.
Who Should NEVER Overpay
Don't overpay if you:
- Earn under £40,000 (unless rapid salary growth expected)
- Have Plan 2 with high balance (over £60,000)
- Are more than 20 years from write-off
- Have other debts with higher interest (credit cards, car finance)
- Don't have an emergency fund (3-6 months expenses)
- Haven't maxed pension contributions (20% tax relief beats 4-7% interest savings)
Why: The loan will likely be written off with a large balance remaining. Every overpayment is money you'll never benefit from.
Example: Plan 2 borrower with £60,000 debt, earning £35,000
- Even with 3% annual salary increases, total repayments over 30 years: ~£42,000
- Balance at write-off: ~£95,000 (after interest)
- Outcome: £53,000 written off - any overpayments wasted
Who MIGHT Consider Overpaying
Consider overpayments only if you:
- Earn over £60,000 consistently
- Have Plan 1 (low interest)
- Are within 5-10 years of full repayment
- Have no other debts
- Have maxed pension contributions
- Have substantial emergency fund
Why: You're on track to repay in full, so reducing interest saves real money.
Example: Plan 1 borrower with £20,000 debt, earning £45,000
- Standard repayments clear loan in 11 years
- Interest at 1%: ~£1,100
- Making £100/month overpayments clears in 8 years
- Interest saved: ~£400
- Outcome: Real saving, but compare with investment returns
The Better Strategy: Invest Instead
For most graduates, investing overpayment amounts in a pension or S&P500 index fund provides better returns:
Pension contribution:
- 20% immediate tax relief (40% for higher rate taxpayers)
- Compound growth (historically 7-10% annually)
- Builds retirement fund while loan gets written off
Example: £100/month overpayment vs pension contribution over 30 years - Overpayment: Reduces £50k loan by ~£8k (assuming write-off) - Pension: £100/month + 20% tax relief = £120/month invested - At 7% annual growth: ~£120,000 pension pot - Pension wins by £112,000+
Use our Pension Calculator to model this strategy for your circumstances.
Student Loans and Your Payslip
Student loan repayments appear on your payslip showing:
Deduction amount: Your repayment this pay period Plan type: Usually shown as "SL1", "SL2", "SL4", "SL5", or "PG" Year-to-date: Total repaid since 6 April
If your payslip shows the wrong plan:
- Check with your employer immediately
- Contact Student Loans Company if plan is wrong
- Claim refund if you've overpaid
Wrong plan types are surprisingly common, especially if you've moved between England, Scotland, Wales, or Northern Ireland.
Self-Employed Student Loan Repayments
If you're self-employed, student loan repayments work differently:
How it works:
- Repayments calculated on your Self Assessment tax return
- Based on total income minus allowable expenses
- Paid alongside your Self Assessment tax bill (31 January and 31 July)
- Same thresholds and rates as employed workers
Example for self-employed (Plan 2):
- Business turnover: £60,000
- Allowable expenses: £15,000
- Taxable profit: £45,000
- Student loan repayment: (£45,000 - £27,295) × 9% = £1,593.45/year
- Paid in two installments: £796.50 on 31 Jan and 31 July
Important: Budget for these payments - unlike PAYE workers, nothing is deducted monthly, so you need to set aside funds.
Student Loans Don't Affect Credit Score
A common misconception: student loans do not appear on your credit report and do not affect your credit score or ability to get credit cards, car finance, or personal loans.
However, they DO affect mortgage affordability because:
- Lenders can see your student loan repayments when assessing affordability for mortgages. A £200/month student loan repayment reduces how much you can borrow, just like any other monthly commitment.
Mortgage affordability example:
- Salary: £50,000
- Plan 2 student loan: £170/month deduction
- Reduces mortgage borrowing by: ~£30,000-£40,000
Use our Mortgage Affordability Calculator to see how student loan repayments affect how much you can borrow.
Moving Abroad With Student Loans
If you move overseas for more than 3 months, you must tell Student Loans Company and continue repayments:
How repayments work abroad:
- Threshold adjusted for the country you're in
- Repayments based on local currency income converted to GBP
- You arrange payments directly (not through PAYE)
- Failure to inform SLC or make payments incurs penalties
Thresholds vary by country. For example:
- USA: £24,000 (Plan 2)
- Australia: £20,000 (Plan 2)
- Canada: £21,000 (Plan 2)
These can be significantly lower than UK thresholds, meaning you might pay more abroad.
Interest continues while overseas, and loans aren't written off early if you don't return to the UK.
## Summary
Student loans function as a 9% income-contingent graduate tax, not traditional debt. For 2025/26, thresholds range from £21,000 (Postgraduate) to £31,395 (Plan 4), with repayment rates of 6-9% on income above these levels.
Key takeaways:
- Most graduates never repay in full - the loan is written off after 30-40 years
- Don't make voluntary overpayments unless you're a high earner certain to clear the balance
- Student loans don't affect credit score but do impact mortgage affordability
- Interest rates are high (3-6%) but irrelevant for most graduates who won't repay in full
- Consider pension contributions instead of overpayments for better tax efficiency
Calculate your exact student loan repayments with our Student Loan Calculator and see how they affect your take-home pay.