Savanna Hoffman
The interest rate on student loans in the UK is determined by the Retail Price Index (RPI) or the bank base rate. The interest is charged from the day the first payment is made by the Student Loans Company and is added to the loan balance each month. The repayment plan and threshold depend on the borrower's income and type of loan. For example, Plan 1 borrowers repay 9% of their income over £2,172 a month, while Plan 2 borrowers repay 9% of everything they earn above £28,470 a year. Interest rates do not affect monthly repayments, but they do impact the total loan balance. Post-2012 student loans have been criticised for their high-interest rates, which currently stand at 7.3%.
| Characteristics | Values |
|---|---|
| Interest charged | From the day the first payment is made by the Student Loans Company until the loan is repaid in full or cancelled |
| Interest rate | Based on the Retail Price Index or RPI, updated annually in September using the RPI from March of that year; for the period 1 September 2024 to 31 August 2025, the applicable rate of RPI is 4.3% |
| Interest rate cap | Applied when the average comparable market rate is lower than the interest rate charged on Plan 2 loans; not currently being applied |
| Interest accrued | Added to the loan balance each month |
| Repayment | 9% of income over the threshold |
| Repayment threshold | Depends on the repayment plan; for Plan 1, £2,172 per month; for Plan 2, £2,372 per month; for Postgraduate Loan, £1,750 per month; for Plan 5, £25,000 per year |
| Repayment pause | If the borrower's salary drops below the threshold |
| Repayment stop | After 30 years for Plan 2, with any remaining loan balance written off; after 40 years for Plan 5 |
| Number of repayment plans | Five |
| Repayment plan determination factors | Where the borrower lived when they took out the loan, when they started their course, and what type of course they studied |
| Plan 1 | Taken out between August 1998 and September 2012 by borrowers in England, Wales, and Northern Ireland |
| Plan 2 | Taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales and between 1 September 2012 and 31 July 2023 in England |
| Postgraduate/Plan 3 | Taken out for master's or doctoral courses by borrowers in England and Wales |
| Plan 5 | Has a lower interest rate than Plan 2 |
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What You'll Learn
Interest rates on student loans
Interest rates for student loans are generally set annually on September 1, using the Retail Prices Index (RPI) of the previous March. The RPI measures changes to the cost of living in the UK. For the period from September 2024 to August 2025, the RPI is 4.3%. Plans 2, 3, and 5 are subject to caps to reflect the "Prevailing Market Rate," meaning rates may change during the year. The interest rate for Plan 2 loans increased to 8%, while the rate for Plan 5 loans is lower than for Plan 2 loans.
Interest is charged from the day the first payment is made to the borrower or their university/college until the loan is fully repaid or cancelled. It is added to the loan balance each month. The interest rate is typically the RPI plus up to 3%, depending on the borrower's circumstances and income. If the average comparable market rate is lower than the interest rate on a Plan 2 loan, a temporary interest rate cap may be applied.
For students from England and Wales who started university in or after 2012, the student loan interest rate is increased in line with the RPI and the temporary 'Prevailing Market Rate' cap. As of September 2024, the headline interest rate for these students is 7.3%. This rate is higher than for previous cohorts and is comparable to many mortgage rates.
It's important to note that while interest rates affect the total loan balance, they do not impact the monthly repayment amounts. Repayments are determined by the borrower's loan plan, salary, and country of residence. For example, Plan 2 borrowers in the UK repay 9% of their income above the annual salary repayment threshold of £28,470. If a borrower's salary drops below the threshold, monthly repayments pause, and any remaining loan balance is written off after 30 years.
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Student loan repayment plans
The student loan repayment plan in the UK is income-contingent, meaning that repayments are calculated as a percentage of income over a certain threshold. The income thresholds are different for each plan type. The repayment plan one is on depends on when one started their course and what type of course they studied. For instance, one is on Plan 1 or Plan 4 if they studied an undergraduate course or a postgraduate course.
If one has a Plan 2 loan, they will be charged interest from the day the first payment is made to them or their university/college until their loan has been repaid in full or cancelled. Interest is added to the balance each month. The interest rate is usually set on 1 September each year, based on the Retail Price Index of the previous March. The interest rate charged is normally the Retail Price Index plus up to 3%, depending on one's circumstances and income. However, during some periods, a lower interest cap may be applied to ensure that one is not being charged a higher interest rate than comparable rates in the commercial market.
If one has a Plan 2 loan and two jobs, they will only make repayments on the income from the job that pays above the threshold. HM Revenue and Customs (HMRC) will determine the annual repayment amount based on the tax return. If one has already made repayments from a salary, HMRC will deduct them from the amount they owe.
If one has a Postgraduate Loan and a Plan 2 loan, they will repay 6% of their income over the Postgraduate Loan threshold and 9% of their income over the lowest threshold for any other plan types they have.
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How much interest is charged
The interest charged on student loans in the UK depends on the repayment plan of the borrower. There are five student loan repayment plans for UK borrowers. The repayment plan is determined by where the borrower lived when they took out their loan, when they started their course, and what type of course they studied.
Plan 1 loans are those taken out between August 1998 and September 2012 by borrowers in England and Wales. All borrowers in Northern Ireland are also on Plan 1. The interest rate for Plan 1 loans is based on the Retail Price Index or RPI, which measures changes to the cost of living in the UK. The interest rate is usually updated once a year in September, using the RPI from the previous March. Plan 1 borrowers repay 9% of their income over the plan's threshold.
Plan 2 loans are those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales and between 1 September 2012 and 31 July 2023 in England. The interest rate for Plan 2 loans is also based on the RPI but is subject to a cap to reflect the "Prevailing Market Rate". This means that the interest rate may change during the year. Plan 2 borrowers repay 9% of their income over the plan's threshold, which was £2,372 per month or £28,470 per year as of May 2025.
Postgraduate/Plan 3 loans are those taken out for master's or doctoral courses by borrowers in England and Wales. The interest rate for Plan 3 loans is also based on the RPI but may also be subject to a cap.
Plan 4 loans may use the bank base rate, which is the official interest rate set by the Bank of England, instead of the RPI.
Plan 5 loans have a lower interest rate than Plan 2 loans, with the rate set at RPI only. This means that total loan balances will be lower for Plan 5 borrowers, who will not pay back more than they borrow in real terms. However, Plan 5 loans have a longer repayment period and a lower salary repayment threshold compared to Plan 2 loans (40 years and £25,000 for Plan 5, compared to 30 years and £28,470 for Plan 2).
It is important to note that the amount of interest charged on student loans does not affect the monthly repayment amount, which is determined by the borrower's annual salary and repayment plan. Monthly repayments are paused if a borrower's salary drops below the threshold and will stop after a certain period, with any remaining loan balance written off.
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When interest is charged
Interest is charged from the day the first payment is made by the Student Loans Company to the borrower or their university or college. Interest is added to the loan balance each month. The interest rate is usually set on 1 September each year, based on the Retail Price Index (RPI) of the previous March. The interest rate charged is normally the RPI plus up to 3%, depending on the borrower's circumstances and income. The RPI is a measure of inflation that tracks changes to the cost of living in the UK.
For example, for students from England and Wales who started university in or after 2012, the headline student loan interest rate is increased in line with the RPI, and the temporary 'Prevailing Market Rate' cap. As of September 2024, it stands at 7.3%.
The interest rate for each repayment plan is set out on gov.uk. Interest rates are generally set on 1 September each year, using the RPI of the previous March. Plans 1 and 4 may use the bank base rate, which is the official interest rate set by the Bank of England, instead of RPI. For plans 2, 3, and 5, rates are subject to caps to reflect the "Prevailing Market Rate". This means rates may change during the year.
If the average comparable market rate is lower than the interest rate charged on a Plan 2 loan, a temporary interest rate cap is applied so the borrower is not disadvantaged. The comparable market rate is reviewed monthly and a change to the interest rate cap is made if necessary.
Monthly repayment amounts are determined by the borrower's annual salary. No repayments are made when a borrower is not working or earning below the relevant salary threshold. If the monthly interest accrued on a student loan is greater than the monthly repayment amount, the borrower’s loan balance will increase. However, it is important to remember that a borrower’s loan balance will be cancelled in full at the end of their repayment period.
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Repaying student loans while self-employed
Repaying your student loan while self-employed in the UK depends on when and where your student loan was taken out, as well as your income. There are four types of student loans in operation: Plan 1, Plan 2, Plan 4, and Postgraduate Loan.
If you took out your student loan in England or Wales before 1 September 2012, you will repay your loan under HMRC's Plan 1. Loans taken out after 1 September 2012 are Plan 2 Loans. Northern Ireland loans are all Plan 1. Loans taken out in Scotland before 6 April 2021 are Plan 1 Loans, but from that date, all existing and new loans are Plan 4.
For Plan 1 Loans, you'll start repaying the April after you leave your course. You'll repay a percentage of your income over the income threshold for your loan type, and how often you get paid. The threshold for Plan 1 is £2,172 per month or £33,000 per year. For example, if you're on Plan 1 and earn £33,000 per year, you'll repay £52 per month, which is 9% of your income over the threshold.
Plan 2 has a threshold of £2,372 per month or £28,000 per year. If you're on Plan 2 and earn £26,400 per year, you'll repay £2 per month, which is 9% of your income over the threshold.
If you have a Postgraduate Loan, you'll repay 6% of your income over the threshold of £21,000 per year. If you also have Plan 2, you'll repay 9% of your income over the Plan 2 threshold.
Repayments are made automatically through the tax system at a rate of 9% and stop once your loan is paid off. This applies whether you're self-employed or in direct employment. If you're self-employed, you'll need to complete a Self Assessment tax return, and HMRC will calculate your repayments based on your income. You can also make voluntary payments before meeting your plan's threshold if you wish.
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Frequently asked questions
Interest rates are generally set on 1 September each year, using the Retail Prices Index (RPI) of the previous March. The interest rate charged is normally the RPI plus up to 3%, depending on your circumstances and income.
The amount of interest charged depends on which repayment plan you are on. For example, Plan 2 borrowers living in the UK repay 9% of everything they earn above the current annual salary repayment threshold of £28,470.
The interest rate for Plan 2 loans is subject to change during the year and is capped to reflect the "Prevailing Market Rate". As of September 2024, the interest rate for Plan 2 loans was 8%.
No, interest is charged from the day the Student Loans Company makes your first payment to you or your university or college, until your loan is repaid in full or cancelled.
Plan 1 loans are those taken out between August 1998 and September 2012 by borrowers in England, Wales, and Northern Ireland. Plan 2 loans are those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales and between 1 September 2012 and 31 July 2023 in England.
