Student loan repayment in the UK works very differently from a standard bank loan. You don't make fixed monthly payments, you don't repay while you are studying, and if you never earn enough, you never repay a penny. Understanding how repayment actually works removes most of the anxiety students feel about taking out a student loan.
This guide explains how student finance repayment works, which repayment plan applies to you, how much you repay each month, and what happens at the end of the repayment period.
The Key Principle: Income-Contingent Repayment
UK student loan repayment is income-contingent. This means your monthly repayment is always based on how much you earn, not on how much you borrowed. If your income is low, your repayment is low or zero. If your income rises, your repayment rises proportionally. If your income drops below the threshold, repayments stop automatically.
This is fundamentally different from a commercial loan. A bank loan requires fixed repayments regardless of your financial situation. A student loan only requires repayments when you can afford them, based on your income at the time.
Many graduates treat their student loan more like a graduate tax than a debt. You pay 9% of everything you earn above the threshold, for a set number of years, and then it is gone. Whether you repay it in full or not does not affect your credit rating or your financial record.
Which Repayment Plan Are You On?
The repayment plan that applies to you depends on when you started your undergraduate course and where you normally live. Most students studying in England fall into one of two plans.
| Plan | Who It Applies To | Threshold | Rate | Write-Off |
|---|---|---|---|---|
| Plan 1 | Started before 1 Sept 2012, or Welsh, Scottish, NI students | £26,900/year | 9% above threshold | 25 years or age 65, whichever is first |
| Plan 2 | Started undergraduate course between 1 Sept 2012 and 31 July 2023 | £29,385/year | 9% above threshold | 30 years after April following graduation |
| Plan 5 | Started undergraduate course on or after 1 August 2023 | £25,000/year | 9% above threshold | 40 years after April following graduation |
If you started your undergraduate course from August 2023 onwards, you are on Plan 5. This guide focuses primarily on Plan 5 as it applies to most new and current students.
Plan 5 Repayment – How It Works
Plan 5 applies to students who started their undergraduate course from 1 August 2023 onwards. Here is how it works in practice.
The Repayment Threshold
You only begin repaying once your income exceeds £25,000 per year, or about £2,083 per month before tax. Below this threshold, you pay nothing regardless of how much you borrowed.
The threshold is reviewed annually by the government and may change over time. Check the current threshold on the Student Finance England website before making any assumptions about your repayments.
The Repayment Rate
Once your income is above £25,000, you repay 9% of everything above that amount. The calculation is straightforward.
| Annual Income | Income Above Threshold | Annual Repayment | Monthly Repayment |
|---|---|---|---|
| £25,000 or below | £0 | £0 | £0 |
| £27,000 | £2,000 | £180 | £15 |
| £30,000 | £5,000 | £450 | £37.50 |
| £35,000 | £10,000 | £900 | £75 |
| £40,000 | £15,000 | £1,350 | £112.50 |
| £50,000 | £25,000 | £2,250 | £187.50 |
Repayments are collected automatically through the PAYE tax system if you are employed, in the same way as income tax and National Insurance. You do not make manual payments or set up a direct debit. If you are self-employed, you declare your repayment through your Self Assessment tax return.
The Write-Off Period
Under Plan 5, any remaining balance is written off 40 years after the April following the year you left or finished your course. If you started a three-year course in September 2023, you would finish in 2026. The 40-year clock starts from April 2027, meaning any remaining balance is written off in April 2067.
For most graduates on Plan 5, the write-off period means the loan functions more like a 40-year graduate contribution than a debt that must be repaid in full. Many graduates will not repay the full balance before the write-off date.
Plan 2 Repayment – Key Differences
If you started your course between September 2012 and July 2023, you are on Plan 2. The main differences from Plan 5 are:
- The repayment threshold is £29,385 per year, higher than Plan 5
- The write-off period is 30 years rather than 40 years
- The threshold is linked to average earnings and adjusts each year
Plan 2 graduates on average incomes are more likely to repay their loan in full before the write-off date than Plan 5 graduates, because the write-off period is shorter and the threshold is higher.
Interest on Student Loans
Interest is charged on student loans from the day you receive your first payment. The interest rate depends on which plan you are on.
Plan 5 interest rate:
From August 2023, the interest rate on Plan 5 loans is set at the Retail Price Index (RPI) rate of inflation. This means the real value of your loan stays roughly the same over time in terms of purchasing power. You are not paying a premium above inflation.
Plan 2 interest rate:
Plan 2 uses a variable rate linked to RPI plus up to 3% while studying, reducing to RPI only once your income is below the threshold. As income rises above the threshold, the interest rate increases on a sliding scale up to RPI plus 3%.
For many graduates, the interest on their student loan is largely irrelevant in practical terms. Because repayments are income-contingent and any balance is written off, the total amount owed at write-off does not affect your finances. What matters is how much you repay each month, which is always 9% of income above the threshold.
What Happens If You Stop Earning or Earn Less?
If your income drops below the repayment threshold for any reason, your repayments stop automatically. This applies whether you lose your job, take parental leave, reduce your hours, or experience any other change in circumstances.
Repayments resume automatically once your income rises above the threshold again. You do not need to notify Student Finance England or make any arrangements. The system adjusts based on your PAYE records or Self Assessment returns.
Does Repaying Early Make Sense?
For most graduates, making voluntary overpayments on their student loan is not financially beneficial. Because any remaining balance is written off at the end of the repayment period, paying more than the income-contingent amount does not reduce the eventual write-off unless you are certain you will repay the full balance before write-off anyway.
If you are a high earner who expects to repay the full balance well before the write-off date, overpaying can save interest. For most graduates on average incomes, the income-contingent system means overpaying rarely makes financial sense. This is a personal finance decision and AEC Consultant recommends speaking to a qualified financial adviser if you are considering overpaying.
Repayment and Mortgages
Student loan repayments are taken from your salary before you see the money, similar to tax. Mortgage lenders consider your student loan repayments as a monthly outgoing when assessing affordability, but student loans do not appear on your credit file and do not directly affect your credit score.
The practical impact on mortgage eligibility is through reduced take-home pay rather than creditworthiness. A graduate earning £35,000 with a student loan repays £75 per month, which reduces their disposable income for mortgage affordability calculations.
For a full overview of student finance including how to apply and how much you can receive, visit our Student Finance England complete guide.
Frequently Asked Questions
When do I start repaying my student loan?
Repayment begins in April after you finish or leave your course, but only if you are earning above the repayment threshold. If you finish your course in summer 2026, the earliest repayments could start is April 2027. If you are not earning above the threshold in April 2027, repayments do not begin until you are.
How do I know which repayment plan I am on?
Your repayment plan depends on when you started your undergraduate course. If you started from August 2023 onwards, you are on Plan 5 with a £25,000 threshold and 40-year write-off. If you started between September 2012 and July 2023, you are on Plan 2. You can confirm your plan by checking your student loan account online.
Do I repay my loan if I work part-time or on a low salary?
No. If your income is below the repayment threshold, you pay nothing. Part-time workers and those on lower salaries only repay once their income exceeds the threshold. Below the threshold, your loan continues to exist but you make no repayments.
What happens to my loan if I move abroad?
If you move abroad after graduating, you are still required to make student loan repayments if your income exceeds the equivalent threshold for your country of residence. The Student Loans Company will ask you to self-report your income and make repayments directly. The thresholds used for overseas repayment vary by country.
Does my student loan affect my credit score?
No. Student loans from Student Finance England do not appear on your credit file and do not affect your credit score. They are not considered in the same way as commercial debt by credit reference agencies.
Can I pay off my student loan early?
Yes, you can make voluntary overpayments or pay off the balance in full at any time. However, for most graduates, early repayment is not financially advantageous because any remaining balance is written off at the end of the repayment period. Early repayment only makes sense if you are confident you will repay the full balance before the write-off date regardless.
What is the difference between Plan 2 and Plan 5?
Plan 2 applies to students who started their undergraduate course between September 2012 and July 2023. The threshold is £29,385 and the write-off period is 30 years. Plan 5 applies to students who started from August 2023 onwards. The threshold is £25,000 and the write-off period is 40 years.
Will my employer know I have a student loan?
Your employer will know you have a student loan because repayments are collected through the PAYE system and appear on your payslip as a deduction. However, the amount of your loan and your total balance are private and are not shared with your employer.
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