Understanding your student loan repayments helps you budget effectively. This guide covers all UK student loan plan types, repayment thresholds, and how repayments are calculated.
Student Loan Plan Types
| Plan Type | Who It Applies To | Start Years |
|---|---|---|
| Plan 1 | England/Wales before Sept 2012, NI | 1998-2012 |
| Plan 2 | England/Wales after Sept 2012 | 2012-2023 |
| Plan 4 | Scottish students | 1998 onwards |
| Plan 5 | England from Sept 2023 | 2023 onwards |
| Postgraduate | Masters or PhD students | 2016 onwards |
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Repayment Thresholds 2025/26
| Plan Type | Annual Threshold | Monthly | Rate |
|---|---|---|---|
| Plan 1 | £26,065 | £2,082 | 9% |
| Plan 2 | £28,470 | £2,274 | 9% |
| Plan 4 | £32,745 | £2,616 | 9% |
| Plan 5 | £25,000 | £2,083 | 9% |
| Postgraduate | £21,000 | £1,750 | 6% |
Calculate Your Repayments
Example: Plan 2 Loan
Annual salary: £35,000
Threshold: £28,470
Income above threshold: £7,705
Annual repayment: £7,705 × 9% = £693.45
Monthly repayment: £57.79
Monthly Repayments by Salary
| Salary | Plan 1 | Plan 2 | Plan 4 | Plan 5 |
|---|---|---|---|---|
| £30,000 | £37.58 | £20.29 | £0 | £37.50 |
| £35,000 | £75.08 | £57.79 | £27.04 | £75.00 |
| £40,000 | £112.58 | £95.29 | £64.54 | £112.50 |
| £50,000 | £187.58 | £170.29 | £139.54 | £187.50 |
When Is Your Loan Written Off?
| Plan Type | Written Off After |
|---|---|
| Plan 1 | 25 years |
| Plan 2 | 30 years |
| Plan 4 | 30 years |
| Plan 5 | 40 years |
| Postgraduate | 30 years |
How Student Loan Repayments Work: The Methodology
UK student loan repayments operate fundamentally differently from other forms of debt. Rather than fixed monthly payments, repayments are calculated as a percentage of your income above a specific threshold. This makes them function more like a graduate tax than a traditional loan.
For Plan 1, Plan 2, Plan 4, and Plan 5 loans, the repayment rate is 9% of income above the relevant threshold. For postgraduate loans, the rate is 6%. These percentages are applied to your gross income (before tax), and the deductions are taken automatically through the PAYE system by your employer, alongside Income Tax and National Insurance.
If you have both an undergraduate and a postgraduate loan, both deductions apply simultaneously. This means someone earning £35,000 with a Plan 2 loan (threshold £28,470) and a postgraduate loan (threshold £21,000) would pay: (£7,705 x 9%) + (£14,000 x 6%) = £693.45 + £840.00 = £1,533.45 per year, or approximately £127.79 per month in total deductions.
Interest on student loans varies by plan type. Plan 1 loans are charged at the lower of RPI inflation or the Bank of England base rate plus 1%. Plan 2 loans charge RPI plus up to 3%, depending on your income. Plan 5 loans, introduced from September 2023, charge only RPI with no additional margin, making them the cheapest in real terms. This means Plan 5 loan balances grow in line with inflation only, so in real terms, the balance never increases.
It is critical to understand that for most graduates, the total amount repaid over the loan's lifetime has little to do with the amount borrowed. What matters is your earnings trajectory over 25-40 years. Higher earners may repay more than they borrowed (plus interest), while lower and middle earners will have the remaining balance written off. According to the Institute for Fiscal Studies, around 70% of Plan 2 borrowers are projected to have some balance written off.
UK-Specific Context: The Student Finance System
The UK student finance system is administered by the Student Loans Company (SLC), a government-owned body. There are important regional variations: English students taking courses from September 2023 onwards are on Plan 5, while Scottish students are on Plan 4, and Northern Irish students are on Plan 1. Welsh students have their own arrangements through Student Finance Wales, generally on Plan 2 terms.
For the 2025/26 tax year, the repayment thresholds are reviewed annually. The Plan 5 threshold is fixed at £25,000 until 2027, after which it will be adjusted in line with RPI. This is a significant change from Plan 2, where the threshold was regularly adjusted upwards. The lower threshold for Plan 5 means graduates start repaying at a lower income level, but the 40-year write-off period means lower earners make smaller payments over a longer time.
Self-employed graduates must calculate and pay their student loan repayments through their annual Self Assessment tax return. The same thresholds and rates apply, but payments are made in lump sums rather than monthly deductions. HMRC calculates the repayment based on your total self-employment income and any employed income combined. Self-employed borrowers should budget for this, as the lump sum can be a significant amount -- a self-employed person earning £50,000 with a Plan 2 loan owes £2,043.45 per year.
The government's approach to student loans has changed considerably since the Augar Review of 2019. Plan 5, the latest incarnation, features lower tuition fees (£9,250 maximum), lower interest rates (RPI only), but a much longer repayment period of 40 years. This trade-off means lower monthly payments but a longer commitment. The government estimates this will actually increase the total amount collected from middle-earning graduates over their working lives.
Worked Examples: UK Student Loan Scenarios
Example 1: Newly Qualified Teacher on Plan 2
Starting salary: £30,000. Plan 2 threshold: £28,470.
Income above threshold: £30,000 - £28,470 = £2,705
Annual repayment: £2,705 x 9% = £243.45
Monthly deduction: £20.29
With a typical Plan 2 balance of £45,000 and salary growth of 3% per year, this teacher would likely have their remaining balance written off after 30 years, having repaid approximately £40,000-60,000 depending on career progression.
Example 2: City Worker with Plan 2 + Postgraduate Loan
Salary: £55,000. Plan 2 threshold: £28,470. PG threshold: £21,000.
Plan 2 repayment: (£55,000 - £28,470) x 9% = £2,493.45/year
PG repayment: (£55,000 - £21,000) x 6% = £2,040.00/year
Total monthly deduction: (£2,493.45 + £2,040.00) / 12 = £377.79
Example 3: Part-Time Worker Below Threshold
Part-time salary: £22,000. Plan 2 threshold: £28,470.
Repayment: £0 per month (income is below the threshold)
The loan still accrues interest, but no repayments are due. If your income remains below the threshold for the full 30-year term, the entire balance is written off with no tax consequences.
Common Mistakes and Tips
Frequently Asked Questions
Does my student loan affect my credit score or mortgage application?
UK student loans do not appear on your credit report and do not directly affect your credit score. However, mortgage lenders do factor in student loan repayments when assessing affordability. They treat the monthly deduction as a committed expenditure, which reduces the amount they are willing to lend. A £200/month student loan repayment could reduce your maximum mortgage by approximately £35,000-45,000, depending on the lender's criteria.
What happens to my student loan if I move abroad?
If you leave the UK, you must notify the SLC and provide evidence of your overseas income. Repayment thresholds are adjusted based on your country of residence and its cost of living. Failure to keep the SLC informed can result in fixed repayment amounts being applied, potential penalties, and the debt being referred to collection agencies. Interest continues to accrue regardless of your location.
Can I repay my student loan early?
Yes, you can make voluntary repayments at any time through the SLC website or by sending a cheque. There are no early repayment penalties. However, as noted above, this only makes financial sense if you expect to repay the full balance before write-off. Use the SLC's repayment calculator to model whether early repayment is worthwhile for your specific circumstances.
What happens to my student loan if I die or become permanently disabled?
UK student loans are written off entirely in the event of the borrower's death or permanent disability. The debt does not pass to family members, spouses, or the borrower's estate. This is another key difference from conventional debt, which would typically be settled from the estate before inheritance distribution.
Key Things to Know
- Not like other debt: Repayments stop if income drops, loan is written off
- No credit score impact: Not reported to credit agencies
- Taken automatically: Via PAYE if employed
- Check your plan: Log in to Student Loans Company
Frequently Asked Questions
What happens to my UK student loan if I move abroad?
Should I make voluntary repayments on my UK student loan?
James Mitchell, ACCA
Chartered Accountant & Former HMRC Advisor
James is a Chartered Certified Accountant (ACCA) specialising in UK personal taxation and financial planning. With over 12 years in practice and a background as a former HMRC compliance officer, he brings authoritative insight to complex tax topics.