How it works
What makes UK student loans different
Unlike most loans, a UK student loan behaves more like a graduate tax with a cap than a debt. There's no fixed monthly minimum, no impact on your credit file, no collections if you don't earn enough, and any balance unpaid at the plan's write-off point (25 to 40 years after study) is wiped — regardless of how much is left.
That fundamentally changes how to think about overpaying. For many graduates (especially Plan 2/Plan 5), paying early is financially worse than paying the minimum — because the balance will likely never be cleared before write-off anyway.
The five plans in 2025/26
| Plan | Who | Threshold | Rate | Write-off |
|---|---|---|---|---|
| Plan 1 | Pre-Sept 2012 UK undergrads (England/Wales); Scotland & NI ongoing | £26,065 | 9% | 25 years after April of repayment due or age 65 |
| Plan 2 | Sept 2012–July 2023 English/Welsh undergrads | £28,470 | 9% | 30 years after April of repayment due |
| Plan 4 | Scottish undergrads (post-2007) | £32,745 | 9% | 30 years after April of repayment due |
| Plan 5 | English undergrads starting Aug 2023 onwards | £25,000 | 9% | 40 years after April of repayment due |
| Postgraduate Loan | English/Welsh PG from 2016/18 onwards | £21,000 | 6% | 30 years after April of repayment due |
How the deduction works in practice
Your employer looks at each payslip period (week or month). If your pay in that period (before pension/salary sacrifice but after pre-tax benefits) annualises above your threshold, they deduct the % of the excess. It's done separately for each payslip, so a one-off bonus can push a month's deduction higher than average.
The amounts collected are sent to HMRC, which passes them to the Student Loans Company (SLC). Plan 1 and Plan 4 are reconciled annually; Plan 2, 5 and Postgraduate have a contribution table by paydate. Multiple plans run at the same time for people with both undergrad and postgrad loans — you pay 9% + 6% = 15% over their respective thresholds.
Example: Plan 2, £40,000 salary
Above threshold = 40,000 − 28,470 = £11,530.
11,530 × 9% = £1,037.70/year, or about £86.50/month.
Example: Plan 5, £30,000 salary
Above threshold = 30,000 − 25,000 = £5,000.
5,000 × 9% = £450/year, or £37.50/month.
Example: Plan 2 + Postgraduate, £45,000 salary
Plan 2: (45,000 − 28,470) × 9% = £1,487.70.
Postgraduate: (45,000 − 21,000) × 6% = £1,440.
Total: £2,927.70/year or ~£244/month on top of Income Tax and NI.
Interest: a moving target
Interest on student loans is not the same as a commercial loan. It's set by the government and tied mostly to the Retail Prices Index (RPI):
- Plan 1 — Lower of RPI and Bank of England base rate + 1%.
- Plan 2 — While studying: RPI + 3%. After graduation: sliding scale from RPI to RPI + 3% depending on income (capped at the Prevailing Market Rate for commercial loans).
- Plan 5 — RPI only, while studying and after.
- Plan 4 — Lower of RPI and Bank of England base rate + 1%.
- Postgraduate — RPI + 3% throughout.
Why the rate caps matter
The rates change in September each year. For Plan 2, interest rarely matters if you're unlikely to clear the loan before write-off; for Plan 5 with its 40-year term, more people will clear.
Should you overpay your student loan?
Largely depends on the plan and your earnings trajectory:
- Plan 2, average earner — almost certainly not. You'll keep paying 9% for 30 years regardless of balance; overpayments just vanish into a balance you were going to write off.
- Plan 2, high earner (£70k+) — maths changes. If you'd clear the loan before year 30 anyway, overpaying saves real interest.
- Plan 5, most earners — with 40 years to clear, a bigger share of borrowers will fully repay. Review every 5 years or so.
- Plan 1 / Plan 4 — low interest; rational to pay minimum.
- Postgraduate loan — higher interest and only 30-year term; if combined with a well-paying career, overpaying may save money.
Common mistakes
- Not telling a new employer you have a loan. HMRC will catch up eventually but you may get a surprise back-deduction.
- Overpaying because you hate the balance. Look at the projected repayment vs write-off first.
- Paying off the last year too aggressively. You can request a switch to Direct Debit for the final 23 months to avoid accidentally overpaying.
- Forgetting that bonuses annualise. A one-off £10k bonus can push a monthly deduction above your expected figure.