Introduction
Student loans in the United Kingdom are unlike any other form of debt. They do not appear on your credit report in the same way as a credit card or personal loan. Repayments are tied to your income, not your balance. And after a set period (typically 30 or 40 years), any remaining balance is written off. This guide focuses on Plan 2 (for students who started university in England or Wales between September 2012 and July 2023) and Plan 5 (for students starting from August 2023 onward). Understanding the rules helps you decide whether to make voluntary repayments or let the system run its course.
Based on rules as of October 2025. Always verify current rates with official sources.
The Core Principle: Income-Contingent Repayment
Unlike a mortgage or car loan, your student loan repayment is not based on how much you owe. It is based on how much you earn. Each month, your employer deducts repayments through the PAYE system (just like Income Tax and National Insurance). If your income falls below the relevant threshold, repayments stop automatically. No missed payment markers, no debt collectors, no damage to your credit score.
This is the most important fact to internalise: student loan repayments are best understood as a graduate contribution tax, not a traditional loan.
Plan 2: Key Rules (2012–2023 Cohort)
Plan 2 applies to students who:
- Started an undergraduate course in England or Wales between September 1, 2012 and July 31, 2023, OR
- Started a postgraduate course (if the loan was under the Plan 2 system)
Repayment threshold (for illustration, as of 2025/26): £27,295 per year, £2,274 per month, or £524 per week.
Repayment rate: 9% of income above the threshold.
Example calculation: If you earn £35,000 per year, your monthly repayment is:
- Income above threshold: £35,000 – £27,295 = £7,705
- 9% of £7,705 = £693 per year
- Monthly repayment = £57.75
Interest rate: While studying and until the April after you leave your course, interest is set at the Retail Price Index (RPI) plus up to 3%. After that, interest varies with income:
- Below the threshold: RPI only
- Above the threshold: RPI plus up to 3% (sliding scale)
Write-off period: Any remaining balance is written off 30 years after the April you were first due to repay.
Plan 5: Key Rules (August 2023 Onward)
Plan 5 applies to students starting undergraduate courses in England from August 1, 2023. (Wales maintains Plan 2; Scotland and Northern Ireland have separate systems.)
Repayment threshold (for illustration, as of 2025/26): £25,000 per year, £2,083 per month, or £480 per week. Note: This is lower than Plan 2’s threshold.
Repayment rate: 9% of income above the threshold (same as Plan 2).
Interest rate: RPI only (no additional 3% component). This is a significant difference from Plan 2.
Write-off period: 40 years after the April you were first due to repay (longer than Plan 2’s 30 years).
Lower threshold, longer term, lower interest: Plan 5 is generally more expensive for higher earners (lower threshold means more income is captured) but cheaper for moderate earners (no interest premium).
Comparing Plan 2 and Plan 5
| Feature | Plan 2 | Plan 5 |
|---|---|---|
| Cohort | 2012–2023 | 2023 onward |
| Repayment threshold (2025/26 illustration) | £27,295 | £25,000 |
| Repayment rate | 9% above threshold | 9% above threshold |
| Interest rate | RPI or RPI+3% | RPI only |
| Write-off period | 30 years | 40 years |
Practical impact: A Plan 2 graduate earning £35,000 repays about £58 per month. A Plan 5 graduate earning the same repays about £75 per month (because the threshold is lower). However, the Plan 5 graduate accrues less interest over time.
Should You Make Voluntary Repayments?
This is the most common student loan question. The answer depends on your expected lifetime earnings.
Generally, voluntary repayments are NOT recommended for most people. Here is why:
- The debt is written off after 30 or 40 years. If you will not repay the full balance before write-off, extra payments are simply a gift to the government.
- Repayments are income-linked. If your income drops (job loss, illness, career break), repayments stop. Voluntary repayments are not refundable.
- The interest rate may be lower than investment returns. Money used to overpay a student loan could instead go into a pension (with tax relief) or an ISA (with tax-free growth).
When voluntary repayments MIGHT make sense:
- You are a very high earner (e.g., consistently earning £70,000+) and will definitely repay the full balance before write-off. In this case, making extra payments reduces total interest.
- You are close to clearing the balance (e.g., £3,000 remaining) and want to eliminate the administrative hassle.
- You are a Plan 2 borrower with high interest (RPI+3%) and you have no better use for the money (e.g., already maxed ISA and pension).
Rule of thumb: If you expect to be a basic-rate taxpayer for most of your career, do not make voluntary repayments. If you expect to be a higher or additional-rate taxpayer throughout, run the numbers carefully.
How Repayments Work in Practice
Employed graduates: Repayments are deducted automatically from your payslip. Your employer calculates your income each pay period, applies the threshold, deducts 9%, and sends it to HMRC. You cannot opt out.
Self-employed graduates: You repay through Self Assessment. On your tax return, you report your income, and HMRC calculates your student loan repayment alongside your Income Tax and NICs. You pay as part of your regular payment on account.
Multiple plans: If you have both Plan 2 and Plan 5 (e.g., you studied an undergraduate degree under Plan 2 and a postgraduate degree under a different plan), you repay 9% of income above the lowest applicable threshold. HMRC allocates the repayment across plans.
Moving abroad: You are still required to repay. You must notify the Student Loans Company (SLC) of your overseas address and income. Repayment thresholds are lower overseas. Failing to notify the SLC can result in penalties.
What Does Not Affect Your Student Loan
- Your credit score – student loans are not visible to most lenders. Mortgage lenders ask about student loans but treat them as an expense, not as a negative credit marker.
- Bankruptcy – student loans are not discharged in bankruptcy (except in extremely rare circumstances).
- Your partner’s income – repayments are based solely on your income, not household income.
- Your savings or investments – only earned income counts.
Checking Your Student Loan Balance
You can check your balance online via the Student Loans Company portal (login.gov.uk). However, be cautious about obsessing over the number. The balance grows with interest and can feel alarming. Remember the key principle: most people will not repay the full balance, and the remaining amount is written off.
For Plan 2 borrowers, the median graduate repays only a portion of their loan. For Plan 5, the longer write-off period means even fewer graduates will repay in full.
Key Takeaways
- Student loan repayments are income-contingent – 9% of income above the threshold, automatically deducted.
- Plan 2 (2012–2023) has higher threshold, higher possible interest – £27,295 threshold, RPI or RPI+3%.
- Plan 5 (2023 onward) has lower threshold, lower interest – £25,000 threshold, RPI only, 40-year write-off.
- Voluntary repayments are usually not recommended – most people will not repay the full balance before write-off.
- The debt is written off after 30 or 40 years – treat it as a graduate tax, not a traditional loan.
This article is for general information and educational purposes only. It does not constitute financial advice. Tax rules, allowances, and product terms may change. Always check with HMRC or an FCA-authorised adviser for your personal circumstances.