Student loan repayment in the UK works very differently from other forms of debt. You repay through the tax system based on your income, not a fixed monthly amount, and your loan is eventually written off if it is not repaid within a set period. This guide explains how each repayment plan works, what interest you are charged, and whether it makes financial sense to overpay.
Student Loan Repayment Plans
The plan you are on depends on when you started your course and where you studied. Here is a summary of the current repayment plans:
| Plan | Who It Applies To | Annual Repayment Threshold | Rate Above Threshold | Write-Off |
|---|---|---|---|---|
| Plan 1 | England & Wales, started before Sept 2012; NI students | £24,990 | 9% | Age 65 |
| Plan 2 | England & Wales, started Sept 2012 – July 2023 | £27,295 | 9% | 30 years after first April you were due to repay |
| Plan 4 | Scotland | £31,395 | 9% | 30 years after first April you were due to repay |
| Plan 5 | England, started from August 2023 onward | £25,000 | 9% | 40 years after first April you were due to repay |
| Postgraduate Loan | Postgraduate Master’s or Doctoral loans | £21,000 | 6% | 30 years after first April you were due to repay |
Thresholds shown are for the 2024/25 tax year. They are typically reviewed annually by the government.
If you have both an undergraduate and a postgraduate loan, repayments are calculated and collected separately. On a salary of £40,000, for example, you would pay 9% on earnings above your undergraduate threshold plus 6% on earnings above £21,000 for the postgraduate loan.
How Repayment Works
Student loan repayments are designed to be linked to your ability to pay:
- Employed (PAYE): Your employer automatically deducts repayments from your salary each pay period, just like income tax and National Insurance. You do not need to do anything — it happens through the tax system via your tax code.
- Self-employed: You calculate and pay your student loan repayments through your annual Self Assessment tax return. Payments are made alongside your income tax.
- Below the threshold: If you earn less than the repayment threshold for your plan, you pay nothing. Repayments restart automatically if your income rises above the threshold.
Repayments are calculated on gross income above the threshold, not your total salary. For example, on Plan 2 with a salary of £37,295, you would pay 9% of £10,000 (the amount above the £27,295 threshold), which is £900 per year or £75 per month.
Interest Rates by Plan
Interest accrues on your student loan from the day it is paid out, not from when you start repaying:
- Plan 1: The lower of the Bank of England base rate plus 1%, or the rate of RPI (Retail Prices Index) inflation. This has historically been relatively low.
- Plan 2: While studying and until the April after you leave your course, interest is set at RPI plus 3%. Once in repayment, the rate depends on your income — RPI for earners at or below the threshold, rising on a sliding scale to RPI plus 3% for those earning £49,130 or more.
- Plan 4: The lower of the Bank of England base rate plus 1%, or RPI — the same formula as Plan 1.
- Plan 5: RPI only — a notable change from Plan 2 that means lower interest charges over the life of the loan.
- Postgraduate Loan: The lower of the Bank of England base rate plus 3%, or RPI plus 3%.
Plan 5’s shift to RPI-only interest was introduced to make the system fairer for newer borrowers, particularly those who were previously pushed into repaying significantly more than they borrowed under Plan 2’s RPI plus 3% structure.
When Loans Are Written Off
One of the most important features of UK student loans is that they do not last forever:
- Plan 1: Written off when you reach age 65 (or 25 years after the first April you were due to repay, for loans taken out after 2006).
- Plan 2: Written off 30 years after the first April following graduation (or leaving your course).
- Plan 4: Written off 30 years after the first April you were due to repay.
- Plan 5: Written off 40 years after the first April you were due to repay.
- Postgraduate Loan: Written off 30 years after the first April you were due to repay.
Any outstanding balance — including accrued interest — is completely wiped. You owe nothing further, and the write-off has no effect on your credit record.
Should You Overpay Your Student Loan?
This is one of the most common questions graduates ask, and the answer depends almost entirely on which plan you are on and how much you earn.
When Overpaying Rarely Makes Sense
Plan 2 borrowers who do not expect to earn significantly above average are unlikely to repay their loan in full before it is written off after 30 years. In this scenario, voluntary overpayments are money you will never see again — you are effectively paying off a debt that would have been cancelled anyway. The Institute for Fiscal Studies has estimated that the majority of Plan 2 borrowers will not repay in full.
When Overpaying Might Make Sense
- Plan 1 higher earners: Plan 1 loans carry lower interest, but the threshold is also lower. If you are a higher earner who will comfortably repay the full balance, overpaying can save you interest (although Plan 1 rates are typically modest).
- Close to full repayment: If you are within a few thousand pounds of clearing your loan, paying it off early avoids further interest charges.
- Plan 5 higher earners: Although the write-off period is 40 years, the RPI-only interest rate is lower. High earners on Plan 5 who will likely repay in full could save by overpaying — but this depends on individual projections.
A Practical Test
Use the Student Loans Company repayment calculator or a tool like MoneySavingExpert’s student loan calculator to estimate whether you are on track to repay in full. If you are not, overpaying is almost certainly not worth it. If you are, compare the interest rate on your student loan with what you could earn by saving or investing the money instead.
In most cases, extra money is better directed toward an emergency fund, a pension, or an ISA, rather than overpaying a student loan that may be partially written off. For help structuring your finances, see our budget planner guide.
Common Student Loan Myths
- “It’s real debt that works like a personal loan.” It is technically a debt, but it behaves more like a graduate tax. Repayments are income-linked, you cannot be chased by bailiffs, and it is written off after a set period.
- “It will damage my credit score.” Student loans do not appear on your credit report and are not visible to credit reference agencies. They do not directly affect your credit score.
- “It stops me getting a mortgage.” Student loan repayments reduce your disposable income, which affects affordability calculations, but lenders do not treat them as conventional debt. Most mortgage providers factor in the monthly repayment amount rather than the total balance. Learn more about how lenders assess affordability in our income tax guide.
- “I should repay it as fast as possible.” For the majority of Plan 2 and Plan 5 borrowers, this is bad advice. If you will not repay in full before write-off, overpaying is money wasted.
- “I don’t earn enough to repay, so it doesn’t matter.” Even if you are below the threshold now, your income may rise in the future. It is still worth understanding your plan so you are not caught off guard when deductions begin.