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Contents
Student loan repayment confuses many graduates. Here’s how it actually works.
Read more: See our Salary By Profession guide for a complete overview of this topic.
The Basic Concept
How Repayment Works
Principle
Reality
Works like a tax
9% of income over threshold
Not like a mortgage
Not fixed monthly payments
Automatic
Through PAYE
Income-linked
Earn less, pay less
Written off eventually
25-40 years depending on plan
Key Features
Feature
What It Means
Threshold-based
Only pay on income above threshold
9% rate
Standard rate for undergraduate loans (Plan 1, 2, 4, 5)
No credit impact
Doesn’t appear on credit report
Not real “debt”
More like graduate tax
Loan Plan Types
Which Plan Are You?
Plan
Who
Plan 1
English/Welsh students before Sept 2012, Northern Irish students
Plan 2
English/Welsh students Sept 2012 – July 2023
Plan 4
Scottish students (via SAAS)
Plan 5
English students from Sept 2023
Postgraduate
Master’s and PhD loans
Thresholds (2026/27)
Repayment thresholds are set annually by the Department for Education / Student Loans Company. These figures apply for the tax year 6 April 2026 to 5 April 2027 — always check gov.uk for the current year before budgeting.
Plan
Annual Threshold
Monthly
Repayment Rate
Plan 1
£26,900
£2,241
9%
Plan 2
£29,385
£2,448
9%
Plan 4 (Scotland)
£33,795
£2,816
9%
Plan 5
£25,000
£2,083
9%
Postgraduate
£21,000
£1,750
6%
Write-Off Periods
Plan
Written Off After
Plan 1
25 years (or age 65 if the loan was taken out before 1 Sept 2006)
Plan 2 interest is charged on a sliding scale based on income, using the same thresholds as repayment. As of 2026/27 (rates are reviewed and can change every September):
Income
Interest Rate
Up to £29,385
RPI only (4.1% for Sept 2026–Aug 2027)
£29,385–£52,884
RPI + up to 3% (sliding scale)
Above £52,884
RPI + 3%, capped at 6% (Sept 2026–Aug 2027)
While studying
RPI + 3%, capped at 6%
A legislative cap currently limits the maximum Plan 2 and Postgraduate Loan interest rate to 6%. This cap and the underlying RPI figure are reviewed annually — check your current rate at gov.uk or in your Student Loans Company online account.
What This Means
Reality
Explanation
Interest can be significant
But doesn’t matter for most
Most won’t repay in full
Loan written off anyway
For high earners
Interest increases total paid
Don’t panic
It’s not like credit card debt
Should You Pay Off Early?
Generally No
Reason
Explanation
Written off eventually
Unpaid balance disappears
Low earners never repay
Or repay less than borrowed
Money could go elsewhere
ISA, pension gets tax relief
No credit impact
Not on credit report
Maybe Yes If
Situation
Why
Very high earner
Will repay in full anyway
Already maxed ISA/pension
Extra cash available
Approaching write-off
With balance left
Emigrating
May have to repay differently
Example: £50k Debt, Plan 2
Scenario
Outcome
Earn £35k throughout career
Never fully repay, written off
Earn £60k+
May repay, plus interest
Pay off now
Save interest but opportunity cost
Self-Employment
How It Works
Feature
Details
Pay via Self Assessment
Not PAYE
Based on profits
Not turnover
Calculated annually
In tax return
Same thresholds
As employed
Payments
When
What
31 January
Balance from previous year
Plus
Payments on account possible
Common Situations
If Income Drops
What Happens
Details
Payments reduce
Automatically
Below threshold
Payments stop
No penalty
For not earning enough
If You’re Abroad
Situation
Rules
Working overseas
Still owe repayments
Must tell SLC
Different thresholds apply
Thresholds vary
By country’s cost of living
Fixed amounts
May be required
Parental Leave
Situation
Details
On statutory pay
May be below threshold
Payments
Reduce or stop
Return to work
Payments resume
Understanding Your Loan
Checking Balance
How
Details
Online
Student Loans Company login
See
Balance, interest, payments
Check annually
As a minimum
Statement Details
Shows
Meaning
Opening balance
Start of year
Interest added
During year
Payments made
Deducted
Closing balance
End of year
Scotland vs England Differences
Scottish Students
Feature
Scotland
Tuition fees
Lower (or free)
Loan amount
Generally smaller
Threshold (Plan 4)
£33,795 (2026/27, highest of any plan)
Write-off
30 years
Summary: Key Points
How It Works
Aspect
Reality
Repayment
9% of income over threshold
Threshold (Plan 2, 2026/27)
£29,385
Duration
30 years (Plan 2)
Interest
Sliding scale up to RPI + 3%, capped at 6%
Credit impact
None
Action Points
Action
Why
Know your Plan
Determines threshold
Check online account
See balance and payments
Don’t worry about balance
Interest often irrelevant
Don’t prioritise early repayment
Unless very high earner
Inform SLC if moving abroad
Different rules apply
Think of It As
Concept
Not
Graduate tax
Normal debt
9% on earnings over threshold
Fixed monthly payment
Written off eventually
Forever owed
Income-linked
Unaffordable
Student loan repayment is designed to be manageable. Focus on your career and savings — the loan takes care of itself.