Student loans in the UK are often misunderstood. Unlike traditional loans, they function more like a graduate tax that you only pay when you earn above certain thresholds. This comprehensive guide covers everything you need to know about student loan repayments for 2025/26.
The Five Student Loan Plan Types
The UK has five different student loan plan types, each with different repayment thresholds and rules:
Plan 1 (Pre-2012 English/Welsh Students, Scottish, Northern Irish) - Repayment threshold: £24,990/year (£2,082/month) - Repayment rate: 9% on income above threshold - Written off: When you're 65, or 25 years after April you were first due to repay - Interest rate: RPI or 1.5%, whichever is lower (currently 1.5%)
Plan 2 (2012-2023 English/Welsh Students) - Repayment threshold: £27,295/year (£2,274/month) - Repayment rate: 9% on income above threshold - Written off: 30 years after April you were first due to repay - Interest rate: RPI + up to 3% while studying, RPI + 0-3% based on income after
Plan 4 (Scottish Students) - Repayment threshold: £31,395/year (£2,616/month) - Repayment rate: 9% on income above threshold - Written off: When you're 65, or 30 years after April you were first due to repay - Interest rate: RPI (currently ~3.1%)
Plan 5 (Post-September 2023 English/Welsh Students) - Repayment threshold: £25,000/year (£2,083/month) - Repayment rate: 9% on income above threshold - Written off: 40 years after April you were first due to repay - Interest rate: RPI only (no additional %)
Postgraduate Loan - Repayment threshold: £21,000/year (£1,750/month) - Repayment rate: 6% on income above threshold - Written off: 30 years after April you were first due to repay - Interest rate: RPI + 3%
Use our Student Loan Calculator to calculate your exact monthly repayments based on your salary and plan type.
How Student Loan Repayments Work
Student loans are deducted automatically from your salary through PAYE if you're employed, alongside Income Tax and National Insurance.
Key principles:
- You only repay when earning above your plan's threshold
- Repayments are 9% of income above the threshold (not 9% of total income)
- Multiple loans? You repay both simultaneously (Plan 2 + Postgraduate = 9% + 6% = 15%)
- Self-employed? You repay through Self Assessment tax returns
Calculation Examples
Example 1: Plan 2, £35,000 Salary - Threshold: £27,295 - Income above threshold: £35,000 - £27,295 = £7,705 - Annual repayment: £7,705 × 9% = £693.45 - Monthly repayment: £693.45 ÷ 12 = £57.79
Example 2: Plan 5, £30,000 Salary - Threshold: £25,000 - Income above threshold: £30,000 - £25,000 = £5,000 - Annual repayment: £5,000 × 9% = £450 - Monthly repayment: £37.50
Example 3: Plan 2 + Postgraduate, £50,000 Salary - Plan 2: (£50,000 - £27,295) × 9% = £2,043.45 - Postgraduate: (£50,000 - £21,000) × 6% = £1,740 - Total annual repayment: £3,783.45 (£315/month)
Check how student loans affect your take-home pay with our calculator.
Student Loan Interest Rates 2025/26
Interest rates vary significantly by plan type:
| Plan Type | Interest Rate | Current Rate (2025/26) |
|---|---|---|
| Plan 1 | RPI or 1.5% (lower) | 1.5% |
| Plan 2 | RPI + 0-3% | 3.1-6.1% |
| Plan 4 | RPI | 3.1% |
| Plan 5 | RPI only | 3.1% |
| Postgraduate | RPI + 3% | 6.1% |
Plan 2 sliding scale while repaying:
- Income up to £27,295: RPI only (3.1%)
- Income £27,295-£49,130: RPI + progressive %
- Income above £49,130: RPI + 3% (6.1%)
For most graduates, the interest rate doesn't matter because the loan will be written off before it's fully repaid. Only high earners will clear their balance.
Will You Ever Pay Off Your Student Loan?
The uncomfortable truth: most graduates will never repay their loan in full. Here's the math:
Average Salary Scenario (Plan 2) - Starting balance: £45,000 - Starting salary: £28,000 (rising 2.5%/year) - Interest rate: 5.5% average - Repayments over 30 years: £42,000 - Interest charged: £52,000 - Balance written off after 30 years: £55,000
The graduate repays £42,000 but the balance still grows to £97,000 before being written off. They never clear it.
High Earner Scenario (Plan 2) - Starting balance: £45,000 - Starting salary: £45,000 (rising 3%/year) - Interest rate: 6% average - Fully repaid after 14 years - Total repaid: £63,000 (principal + interest)
Only graduates earning £40,000+ throughout their career typically clear their loan. For everyone else, it functions as a 9% income-contingent tax for 30-40 years.
This is why many financial advisors say: don't make voluntary overpayments unless you're certain you'll clear the balance.
Should You Make Overpayments?
Making voluntary overpayments only makes sense if:
✅ You're certain to clear your balance - Typically high earners on £50,000+ with clear career trajectory ✅ You're close to clearing it - Within 5-10 years of clearing and want to save on interest ✅ You have Plan 1 - Lower threshold, lower interest, longer write-off period means you're more likely to repay in full
❌ Don't make overpayments if:
- You're on average income (under £40k)
- You're early in your career (balance will be written off)
- You could invest the money elsewhere for better returns
- You have other debts with higher interest rates (credit cards, car finance)
- You 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
Overpayment vs Investment Comparison
£200/month overpayment vs investment over 30 years:
| Option | Total Paid | Outcome |
|---|---|---|
| Overpayments | £72,000 | Save £15,000 interest (if you repay in full) |
| Invest at 6% return | £72,000 | Worth £200,000 after 30 years |
| Loan written off anyway | £0 extra | No benefit from overpayments |
For most graduates, the £72,000 in overpayments would have been completely wasted when the loan is written off, while investing could have built a £200k pot.
Use our Pension Calculator to model this strategy for your circumstances.
Student Loans and Self-Employment
If you're self-employed, you don't repay through PAYE. Instead:
How it works:
- Complete Self Assessment tax return annually
- HMRC calculates your student loan repayment based on your profits
- Paid alongside your Self Assessment tax bill (31 January and 31 July)
Important for self-employed:
- Repayments based on profits, not turnover
- You can deduct business expenses before calculation
- Payments on account mean you pay twice yearly
- No automatic deduction - you must remember to file
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: £796.73 each
Check our Self Assessment Guide for complete self-employment tax information.
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 see the monthly deduction on your payslip
- Reduces your disposable income for affordability calculations
- 9% student loan repayment = ~£300/month less borrowing capacity per £30k salary
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 notify 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.