Student loan repayment in the UK — how it actually works
UK student loans are one of the most misunderstood financial products most graduates own. They are not really loans in any traditional sense — they function more like a graduate tax, with repayments tied to income and any outstanding balance written off after a fixed period. Understanding the mechanics changes almost every decision about how to handle them.
Your repayment terms depend entirely on when and where you studied. There are now five plan types, but three affect most working graduates:
| Plan | Who | Repayment threshold (2025/26) | Write-off |
|---|---|---|---|
| Plan 1 | England/Wales pre-2012, Scotland & NI most students | £24,990/yr | Age 65 |
| Plan 2 | England/Wales from 2012 to 2023 | £27,295/yr | 30 years after first repayment |
| Plan 5 | England starting from 2023/24 | £25,000/yr | 40 years after first repayment |
In all cases, you repay 9% of earnings above the threshold. Nothing below the threshold is touched.
Repayments are collected automatically through PAYE, the same system used for Income Tax and National Insurance. Your employer deducts the amount and sends it to HMRC. You never handle the money directly.
On a Plan 2 threshold of £27,295, someone earning £35,000 repays 9% of the £7,705 above the threshold — roughly £693 a year or £58 a month. Someone earning £50,000 repays 9% of £22,705 — around £2,043 a year or £170 a month. Earnings below the threshold are completely unaffected regardless of the total loan balance.
Your repayment amount is based entirely on what you earn, not what you owe. Whether your balance is £30,000 or £80,000, your monthly repayment on a £35,000 salary is identical. The balance is almost irrelevant to your day-to-day finances.
Plan 2 loans currently charge interest at the lower of RPI inflation or a rate tied to earnings above the threshold — up to RPI + 3% for high earners. Plan 5 charges RPI only. Plan 1 is capped at either RPI or the Bank of England base rate plus 1%, whichever is lower.
These interest rates can feel alarming, but for the majority of Plan 2 and Plan 5 borrowers the interest rate is largely academic. If your balance will be written off before you pay it down — which is likely for many — the interest just adds to a number that gets cancelled. You never pay it.
This is the most important question, and the answer varies significantly by income and plan type. The Institute for Fiscal Studies has found that only around a quarter of Plan 2 borrowers are expected to fully repay their loan within the 30-year window. The rest will have some or all of the balance written off.
Under Plan 5, the 40-year write-off window means more graduates will eventually clear their balance — but the IFS estimates that around half of Plan 5 borrowers will still have debt written off at the end.
If you are on a lower expected income trajectory, or work part-time, or take career breaks, the probability of write-off is high. Treating the loan as a debt in the traditional sense — something to aggressively pay down — may not be the right approach.
For most borrowers, the answer is no. Here is why: every pound you voluntarily overpay reduces your balance, but if that balance was going to be written off anyway, you have simply given money to the government that you did not need to. Unlike a mortgage or credit card, overpaying a student loan does not reduce your monthly repayment — it just reduces the final balance, which may be irrelevant.
The exception is borrowers who are genuinely on track to clear their loan within the write-off window. For a Plan 1 borrower with a modest balance and a high salary, voluntary overpayments at a time when interest rates are low can make mathematical sense. For most Plan 2 and Plan 5 borrowers, it does not.
Use the government's student loan repayment calculator at gov.uk, or contact the Student Loans Company directly, to get a projection of your total expected repayments over your career. If the projected repayments are less than your current balance, overpaying does not make financial sense.
Student loan repayments are deducted from gross pay through PAYE, after Income Tax and National Insurance are calculated. They do not affect your tax code or your NI contributions — they are a separate line on your payslip entirely.
What they do affect is your net disposable income. Combined with Income Tax and National Insurance, a Plan 2 graduate earning just above the threshold faces an effective marginal rate that can feel very high — roughly 42% for a basic rate taxpayer (20% income tax + 8% NI + 9% student loan = 37%, plus the employer NI dynamic on your cost to employer).
Use the and select your plan type to see exactly what your student loan costs you each month at your current salary.
If you have both an undergraduate and a postgraduate loan, repayments run simultaneously once you cross the relevant thresholds — 9% for your undergraduate plan, plus 6% for the Postgraduate Loan above its own threshold (£21,000). In that scenario your combined deductions above both thresholds can be substantial, and it is worth modelling the numbers carefully.
Student loan repayments are essentially a graduate income supplement — a small, automatic deduction that increases with earnings and stops when income drops. The balance is far less important than most graduates believe. Before making any voluntary overpayments, model your expected lifetime repayments. In most cases, directing extra money towards an emergency fund, ISA, or pension will serve you better.