Why This [UK Student loans] Guide Matters Right Now

Student loans in the United Kingdom are one of the most misunderstood financial products in the country. With outstanding student loan debt across the UK now exceeding £267 billion — and projected to reach £500 billion by the late 2040s — the system underpinning how we pay for higher education is simultaneously one of the most consequential and least understood parts of British financial life.

For students starting university in 2025 or 2026, the landscape is changing more rapidly than at any point since tuition fees were first introduced in 1998. Tuition fees are rising for the first time in eight years, a brand-new repayment plan called Plan 5 is entering its first active repayment phase, and a sweeping overhaul of the entire student finance system — the Lifelong Learning Entitlement — is set to launch in January 2027. Meanwhile, over 2.6 million graduates currently owe more than £50,000, and the number of borrowers carrying six-figure balances has surged by a third in 2025 alone, rising to over 150,000.

This guide is designed to cut through the noise. Whether you are a school leaver weighing up whether university is worth the cost, a current student trying to understand what you actually owe, or a graduate confused by your repayment statement, this comprehensive breakdown will give you everything you need to navigate the UK student loan system with confidence.

What Are UK Student Loans and How Do They Work?

At the most basic level, UK student loans are government-backed financial products administered by the Student Loans Company (SLC). They are designed to help cover two distinct costs: your university tuition fees and your day-to-day living expenses while you study. To reflect this, they come in two main forms.

A tuition fee loan pays your university fees directly. For most students in England in the 2025/26 academic year, this covers up to £9,535 per year — the current maximum fee cap. This money goes straight to your university; it never passes through your hands.

A maintenance loan is paid directly into your bank account to help cover rent, food, transport, books, and other living costs. Unlike the tuition fee loan, this amount is means-tested, meaning it varies depending on your household income, where you live, and your personal circumstances. Students with disabilities, dependents, or estranged family situations may qualify for additional support.

The critical thing to understand about both types of loan is that they are repaid together as a single combined payment once you have finished your course and are earning above a certain income threshold. Repayments are deducted automatically through the PAYE tax system, just like income tax and National Insurance. You do not receive an invoice, and you do not need to arrange a separate payment. The system is designed to be invisible to the borrower when earnings are low, and to scale proportionally as income rises.

This income-contingent repayment model is what makes UK student loans fundamentally different from traditional debt. If your salary drops below the threshold at any point — whether due to redundancy, career change, or any other reason — repayments stop automatically and resume only when your income rises again. There is no credit check, no penalty for late payment, and no default in the conventional sense.

The Five [UK Student Loan] Repayment Plans: Explained

One of the most confusing aspects of the UK student loan system is that there are not one, but five different repayment plans. Which plan applies to you depends entirely on where you lived when you took out your loan, when you started your course, and what type of course you studied.

Plan 1 for UK Student Loans

Plan 1 applies to students who started their undergraduate course before September 2012 in England or Wales, as well as all borrowers in Northern Ireland. This is the oldest plan still in active repayment. The current repayment threshold for the 2025/26 tax year is £26,065 per year, and it rises to £26,900 from April 2026. Borrowers repay 9% of earnings above this threshold. The interest rate on Plan 1 is set at the lower of RPI or the Bank of England base rate plus 1%. As of September 2025, this stands at 3.2%, reflecting the March 2025 RPI figure. Loans taken out before August 2007 are written off at age 65 or 30 years after the first repayment was due, whichever comes first.

Plan 2 for UK Student Loans

Plan 2 is currently the most common repayment plan for graduates in England and Wales. It applies to undergraduate loans and Postgraduate Certificate of Education (PGCE) loans taken out between September 2012 and July 2023. The repayment threshold for 2025/26 is £28,470 per year, rising to £29,385 from April 2026. However, the government has announced that this threshold will then be frozen at £29,385 until April 2030, meaning it will not increase with inflation for four years. This freeze will gradually push more borrowers into repayment over time as wages continue to grow.

The interest rate on Plan 2 is more complex than on other plans. While studying and in the year after leaving your course, it is set at RPI plus 3% — currently 6.2%. After that, the rate depends on your earnings. If you earn £28,470 or less, the rate drops to RPI only. As your income rises above this threshold and towards £51,245, a sliding scale adds between 0% and 3% on top of RPI. Once you earn above £51,245, the rate is capped at RPI plus 3%. Any remaining balance is written off after 30 years.

Plan 3 for UK Student Loans (Postgraduate Loans)

Plan 3 is specifically for master’s and doctoral loans taken out by borrowers in England and Wales. It operates alongside — not instead of — any undergraduate loan. Postgraduate borrowers repay 6% of income above a threshold of £21,000 per year. This is collected separately from the 9% undergraduate repayment, meaning a borrower with both a Plan 2 and a Plan 3 loan could be repaying up to 15% of their income above the respective thresholds simultaneously. The postgraduate threshold has remained frozen at £21,000 since postgraduate loans were introduced in 2016.

Plan 4 for UK Student Loans

Plan 4 applies to all student loans in Scotland. Scottish-domiciled students studying at Scottish universities benefit from no tuition fees, but they still take out maintenance loans if needed. The Plan 4 threshold for 2025/26 is £32,745 — significantly higher than the English and Welsh thresholds — rising to £33,795 from April 2026. The repayment rate is 9% above this threshold, and the interest rate mirrors Plan 1. Scottish loans are written off after 35 years.

Plan 5 for UK Student Loans

Plan 5 is the newest and, in many ways, the most significant addition to the system. It applies to all undergraduate and PGCE loans for courses started in England on or after 1 August 2023. The first cohort of Plan 5 borrowers began repaying in April 2026. The repayment threshold is £25,000 per year — notably lower than Plan 2’s threshold. Borrowers repay 9% of earnings above this level.

However, Plan 5 was specifically designed to address criticism of Plan 2. The interest rate is set at RPI only, with no additional percentage on top. This means Plan 5 borrowers will never repay more than they originally borrowed in real terms. The trade-off is a longer repayment period: Plan 5 loans are written off after 40 years rather than 30. The government’s own forecasts suggest that around 56% of full-time undergraduates starting in 2024/25 will repay their Plan 5 loans in full — more than double the equivalent figure for the 2022/23 cohort under Plan 2.

How Much Will You Actually Repay Each Month?

The single most important thing to understand about student loan repayments is this: you repay 9% of the amount you earn above your threshold, not 9% of your entire salary. This distinction makes an enormous difference to how much actually comes out of your pay packet each month.

Here are some worked examples using 2026/27 figures:

Example 1 — Plan 5, salary of £30,000. Your threshold is £25,000. You earn £5,000 above it. 9% of £5,000 equals £450 per year, or approximately £37.50 per month.

Example 2 — Plan 2, salary of £35,000. Your threshold from April 2026 is £29,385. You earn £5,615 above it. 9% of £5,615 equals £505.35 per year, or roughly £42.11 per month.

Example 3 — Plan 2, salary of £50,000. You earn £20,615 above the threshold. 9% of £20,615 equals £1,855.35 per year, or about £154.61 per month.

Example 4 — Both Plan 2 and Plan 3, salary of £40,000. On the undergraduate side, you earn £10,615 above £29,385, paying 9% — that is £955.35 per year. On the postgraduate side, you earn £19,000 above £21,000, paying 6% — that is £1,140 per year. Your total annual repayment across both loans is £2,095.35, or approximately £174.61 per month.

It is also worth noting that employers calculate repayments per pay period rather than annually. If your salary fluctuates — for example, due to a bonus or overtime in a particular month — your employer may deduct a larger amount that month, with a smaller or zero deduction the following month. Over a full year, this generally balances out.

Interest Rates on UK Student Loans: What They Do and What They Do Not Do

Interest rates on student loans cause more anxiety than almost any other aspect of the system, and much of that anxiety is misplaced. Here is why.

Interest rates on UK student loans affect only your total loan balance. They do not change how much you repay each month. Your monthly repayment is determined solely by your income, your loan plan, and the applicable threshold. Whether your interest rate is 3% or 7%, your monthly deduction on a given salary remains exactly the same.

What interest does is change the total amount you owe. If your interest rate is higher than the rate at which you are paying down the principal, your balance will grow rather than shrink. This is particularly relevant for Plan 2 borrowers, where the interest rate during and immediately after study can be as high as RPI plus 3%. A borrower with a £100,000 Plan 2 balance on a 6.2% interest rate will see roughly £465 added to their balance each month in interest charges. If their monthly repayment is less than this, their debt is actually growing.

For many Plan 2 borrowers — particularly those on lower incomes — this means the loan will never be fully repaid before the 30-year write-off date. In those cases, interest rates are largely academic, because the remaining balance will simply be cancelled. The government already forecasts that a significant proportion of Plan 2 borrowers will not repay their loans in full.

Plan 5 was explicitly designed to eliminate this concern. By capping the interest rate at RPI only — currently 3.2% — the government ensures that Plan 5 borrowers never repay more in total than the original value of their loan, adjusted for inflation.

Tuition Fees in 2025 and 2026: What Has Changed?

After being frozen at £9,250 per year for eight consecutive years, tuition fees in England rose to £9,535 for the 2025/26 academic year — a 3.1% increase. This was the first adjustment since 2017 and came amid widespread warnings from universities that the fee freeze had eroded their funding to unsustainable levels. Research suggests the average cost to universities of actually teaching a student in England now stands at around £12,500 per year, meaning institutions have been effectively subsidising domestic students for years.

Looking ahead, the fee cap for 2026/27 will rise again to £9,790, and for 2027/28 it will reach £10,050. The government has confirmed that fees will continue to increase annually in line with inflation from this point forward, bringing an end to the era of frozen fees entirely.

These increases directly affect the total amount students borrow. A student starting a standard three-year degree in September 2026 will pay £9,790 in Year 1, £10,050 in Year 2, and an as-yet-unconfirmed (but inflation-linked) figure in Year 3. The total tuition cost for that cohort will likely exceed £30,000 before a single penny of maintenance loan is added.

The picture varies significantly across the rest of the UK. Scottish-domiciled students studying at Scottish universities continue to pay no tuition fees at all, with the Scottish Government covering the cost directly through the Student Awards Agency Scotland. Northern Ireland charges home students a capped fee of £4,750 per year. Wales charges the same fee cap as England but offers more generous maintenance support, including grants that do not need to be repaid.

The Average Graduate Debt: How Bad Is It Really?

The headline figures can be alarming. The average debt among English graduates who finished their course in 2024 was £53,000 at the point they first became liable to repay. In Wales the average was £37,360, in Northern Ireland £25,730, and in Scotland around £16,680. The total outstanding student loan debt across the entire UK reached £267 billion at the end of March 2025.

But context matters enormously here. These are not debts in the traditional sense. They will never appear on your credit file. They will not result in bailiffs turning up at your door if you cannot pay them. They function far more like a tax on future earnings than a conventional loan, and for a significant proportion of borrowers, they will be written off before they are ever fully repaid.

The Institute for Fiscal Studies and the House of Commons Library have both noted that the effective cost of a student loan depends heavily on lifetime earnings. For a graduate who earns a modest salary throughout their career, the total amount repaid may be substantially less than the amount originally borrowed — because the loan is written off after 30 or 40 years regardless of the outstanding balance. For a high earner, the total repaid over a lifetime may exceed the original loan amount due to interest, but even then the annual cost as a proportion of income remains relatively modest.

What is genuinely concerning, however, is the growing number of borrowers with very large balances. The number of graduates owing more than £100,000 in student debt jumped by 33% in the first half of 2025, reaching over 150,000 people. One borrower was reported to owe close to £300,000. These extreme balances are typically the result of extended study, postgraduate loans stacking on top of undergraduate debt, and years of compound interest on Plan 2 loans.

Repayment Thresholds for student Loans at a Glance: 2026/27

For quick reference, here are the repayment thresholds that will apply from April 2026 for the 2026/27 tax year:

Note that the Plan 2 threshold will remain frozen at £29,385 until April 2030 under current government policy. All other thresholds are expected to increase annually in line with inflation or average earnings.

Should You Make Voluntary Overpayments?

This is one of the most debated questions in UK personal finance, and the honest answer is: for most people, no.

Voluntary overpayments on a student loan are allowed, with no penalty. But for the majority of borrowers — particularly those on Plan 2 or Plan 5 — overpaying does not make financial sense. Here is why.

First, if you are unlikely to repay your loan in full before the write-off date, any extra money you put towards it is money that could have been earning interest in a savings account or investment instead. The portion of your loan that will eventually be written off is, in effect, a grant from the government. Paying it off early means you are voluntarily giving up that grant.

Second, student loans have no impact on your credit score. They do not appear on your credit file. While they are factored into affordability assessments by mortgage lenders (because they reduce your take-home pay), they do not count as “debt” in the way a credit card or personal loan does.

The exceptions to this general rule are relatively narrow. If you are a very high earner and your loan forecasts show you will comfortably repay in full well before the write-off date, then overpaying could reduce the total interest you pay over the life of the loan. Similarly, borrowers on Plan 1 with very old loans close to their write-off date may benefit from accelerated repayment. If you are in doubt, the Student Loans Company website has a repayment calculator that can help you model your specific situation.

What Happens If You Move Abroad?

Student loan repayments are tied to your income, not your location. If you move abroad after graduating, you are still legally required to repay your student loan. The difference is that the automatic PAYE deduction no longer applies, because you are no longer being paid through the UK tax system.

Instead, you must contact the Student Loans Company and set up a direct repayment arrangement. You will be expected to repay an amount equivalent to what you would pay had you been earning the same salary in the UK. Failure to set up repayment when living abroad can result in penalties and additional charges.

The Student Loans Company actively pursues borrowers who have moved overseas without making arrangements. In recent years, the SLC has invested in improved data-sharing agreements with other countries to help track graduates living abroad.

The Lifelong Learning Entitlement: The Biggest Shake-Up Since 1998

Perhaps the most significant change on the horizon for UK student finance is the Lifelong Learning Entitlement, or LLE. This is not a tweak to the existing system — it is a wholesale replacement of the way post-18 education is funded in England.

From January 2027, the LLE will create a single, unified funding system that replaces both undergraduate student finance and Advanced Learner Loans at levels 4, 5, and 6. Applications will open in September 2026. The core idea is simple: instead of a one-off entitlement that must be used on a traditional three-year degree, learners will receive a personal “pot” of funding equivalent to four years of full-time study — currently valued at £38,140 based on 2025/26 fee rates — that they can draw on flexibly throughout their working lives, up to the age of 60.

This means a worker in their 40s who wants to retrain in a new field will be able to access the same tuition fee loan funding as an 18-year-old starting their first degree. A person who completed a degree years ago but wants to study a Higher Technical Qualification will be eligible to use whatever remains in their entitlement. The restrictions that previously prevented people from receiving funding for a qualification at the same or lower level than one they already held — known as ELQ restrictions — are being removed under the LLE.

The LLE will also fund modules and shorter courses for the first time, not just full-year programmes. This is particularly significant for technical education, where employers often need workers to acquire specific, focused skills rather than complete entire degree programmes.

There are, however, reasons for caution. A pilot programme run by the Office for Students in 2022/23 to test demand for short courses attracted only 125 enrolments, with just 41 students taking out a loan. Polling has suggested that older workers and those outside London are less likely to want to take on student loan debt to fund retraining. Whether the LLE will achieve its stated ambition of making lifelong learning genuinely accessible remains to be seen — but its arrival marks a fundamental shift in how the government thinks about the relationship between education, debt, and economic participation.

Practical Tips: Navigating the System Smartly

Understanding how student loans work in theory is one thing. Managing them well in practice is another. Here are some actionable steps that can make a real difference.

Check your repayment plan. Your plan type should appear on your payslip, often labelled as “Student Loan Plan 1,” “Plan 2,” or similar. If you are unsure which plan you are on, log into your Student Loans Company account or contact them directly. Being on the wrong plan is a known source of overpayment.

Claim refunds if you have overpaid. Overpayments are not uncommon. They can happen if you were placed on the wrong plan, if deductions started before you were liable to repay, or if your employer continued deducting after your loan was cleared. The Student Loans Company introduced a digital refund system in May 2024, which was used over 400,000 times in its first six months. If you think you have overpaid, contact the SLC with evidence such as payslips or a P60.

Understand how student loans interact with mortgages. Student loans do not appear on your credit file and will not directly prevent you from getting a mortgage. However, mortgage lenders do factor student loan repayments into affordability assessments, because they reduce your monthly take-home pay. This means your maximum borrowing capacity may be lower than it would be without a student loan. The effect is generally modest but worth discussing with a mortgage adviser.

Do not panic about the balance. Watching your student loan balance fail to go down — or even grow — can be psychologically distressing. But for many borrowers, particularly those on lower incomes, the balance is largely irrelevant to their actual financial situation. What matters is the monthly repayment amount, which is directly tied to what you earn. If your salary is modest, your repayment will be modest, regardless of the headline balance.

Plan ahead if you are considering postgraduate study. Postgraduate loans stack on top of undergraduate debt, and the combined repayment burden can be significant. Before taking on a master’s or doctorate, it is worth modelling your likely total debt and future repayment obligations using the tools available on the Student Loans Company and GOV.UK websites.

Keep an eye on policy changes. The UK student loan system has been reformed multiple times since its inception, and further changes are likely. Thresholds, interest rates, and write-off periods have all shifted over the years. Staying informed — particularly around annual Budget announcements — ensures you are not caught off guard by changes that affect your repayment.

Frequently Asked Questions

Do I have to repay my student loan if I do not finish my degree? Yes. Repayment is linked to your loan, not your qualification. If you drop out but have already drawn down loan funding, you will be liable to repay once your income exceeds the threshold for your plan. The same income-contingent rules apply.

What happens to my student loan if I die? The loan is written off immediately upon death. There is no liability passed on to family members or estates.

Can my student loan be written off early due to disability? Yes. If you become permanently disabled and are unable to work, your outstanding balance can be cancelled. You would need to apply to the Student Loans Company with medical evidence.

Does my student loan affect my credit score? No. Student loans administered by the Student Loans Company do not appear on your credit file and have no direct impact on your credit score.

What if I earn below the threshold for my entire career? You will make no repayments at all. When the write-off period ends — 30 years for Plan 2, 40 years for Plan 5 — whatever remains of your balance is cancelled by the government.

Are student loans the same as bank loans? No. They share the name “loan,” but they function very differently. There is no credit check, no penalty for non-payment, no bailiff action, and the balance does not appear on your credit file. Repayments are automatic, income-based, and proportional. In many respects, they function more like a graduate tax than a conventional debt product.

The Bottom Line

UK student loans are, for all their complexity, fundamentally designed to make higher education financially accessible without imposing crippling immediate costs on young people. The system is far from perfect — interest rates on older plans remain punishing for some borrowers, maintenance loans consistently fail to cover the full cost of living, and the growing mountain of national student debt raises serious long-term questions about fiscal sustainability.

But the core mechanism — repay only when you can afford to, only on the amount you earn above a threshold, and have any remaining balance wiped out after a set period — remains one of the more borrower-friendly structures in the developed world. The introduction of Plan 5 and the upcoming Lifelong Learning Entitlement represent genuine attempts to make the system fairer and more sustainable going forward.

The key is to understand exactly which plan you are on, what the thresholds and interest rates are for your specific situation, and to stay informed as policy continues to evolve. The numbers in this guide are current as of early 2026, but they will change again. Bookmark the GOV.UK student loan pages and the Student Loans Company website, and revisit them at least once a year.

For most graduates, a student loan will be a quiet, manageable background presence in their financial life for years to come. It should not be a source of paralysing anxiety — but it should absolutely be understood.

Sources: House of Commons Library, GOV.UK, Student Loans Company, Office for Students, Institute for Fiscal Studies, Royal London.