Lana Oconnell
The student loan system in the UK aims to ensure that upfront costs do not deter potential students from pursuing higher education. Repayments are based on income, with graduates only required to pay back a percentage of their income over a certain threshold. Interest rates vary, with Plan 2 and postgraduate loans currently at 7.3%. The average debt among borrowers who finished their course in 2024 was £53,000, and it is expected that 56% of full-time undergraduates starting in 2024/25 will repay their loans in full. However, some argue that due to the low interest rates on student loans, it is not always beneficial to pay them off early, as savings accounts can offer higher interest rates.
| Characteristics | Values |
|---|---|
| Number of students who pay off their loans in the UK | 56% of full-time undergraduates starting in 2024/25 are forecast to repay their loans in full |
| Average debt among borrowers | £53,000 when they first became liable to repay this debt (as of April 2025) |
| Average amount borrowed by full-time undergraduate students | £15,290 in the academic year 2023/24 |
| Average amount borrowed for tuition fees | £8,760 |
| Average amount borrowed for maintenance | £7,600 |
| Amount loaned per year to students in England | £21 billion |
| Number of students loaned money per year in England | 1.5 million |
| Value of outstanding loans as of March 2025 | £267 billion |
| Forecast value of outstanding loans by the late-2040s | £500 billion |
| Interest rate on Plan 2 and Plan 3 loans | 7.3% |
| Repayment threshold for Plan 1 | £26,065 |
| Repayment threshold for Plan 2 | £2,372 per month |
| Repayment threshold for Plan 1 | £2,172 per month |
| Interest rate as of September 2024 | 4.3% |
| Rate of inflation as of March 2024 | 4.3% |
| Percentage of master's loan borrowers expected to fully repay their loan | 77% |
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Repayments based on income
The amount that students repay towards their loans in the UK depends on their income. Graduates repay student loans to the government after their earnings exceed a certain threshold. The loan repayment system aims to ensure that upfront costs do not deter potential students from pursuing higher education.
The income thresholds are different for each plan type, and the amount repaid is calculated as a percentage of income over the threshold. For example, if a graduate is on Plan 1 and has an income of £33,000 a year, they repay 9% of their income over the threshold of £2,172 per month, which equates to £52 per month. If a graduate has a Postgraduate Loan and a Plan 2 loan with an income of £28,800 per year, they repay 6% of their income over the Postgraduate Loan threshold of £1,750 per month, and 9% of their income over the Plan 2 threshold of £2,372 per month, which equates to £41 per month.
If a graduate has multiple jobs, they will only make repayments on the income from the job that pays above the threshold. HM Revenue and Customs (HMRC) calculate how much is owed each year based on the tax return. If a graduate has already made repayments from their salary, HMRC will deduct these from the total amount owed.
The threshold amounts change on 6 April every year. Graduates can request a refund at the end of the tax year if their annual income is less than the yearly threshold for their plan. There is no penalty for paying off some or all of the loan early.
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Interest rates
The interest rate on a student loan depends on the borrower's repayment plan. There are five student loan repayment plans for UK borrowers, and the 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
Plan 1 loans are those taken out between August 1998 and September 2012 by borrowers in England, Wales, and Northern Ireland. The interest rate for Plan 1 income-contingent repayment loans is the Retail Price Index (RPI) or the Bank Base Rate + 1%, whichever is lower. For the period from 1 September 2024 to 31 August 2025, the applicable rate of RPI is 4.3%. The repayment threshold for Plan 1 loans rose to £26,065 from 6 April 2025 to 5 April 2026.
Plan 2
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 rates for Plan 2 income-contingent student loans vary between RPI and RPI +3% depending on the borrower's circumstances. The applicable rate of RPI is 4.3% for the period from 1 September 2024 to 31 August 2025. The income threshold for repayment of Plan 2 loans rose to £28,470 from 6 April 2025 to 5 April 2026. The interest rate on Plan 2 loans is currently 7.3%. Plan 2 borrowers living in the UK repay 9% of everything they earn above the current annual salary repayment threshold of £28,470.
Plan 3
Postgraduate/Plan 3 loans are those taken out for master's or doctoral courses by borrowers in England and Wales. The interest rate for Postgraduate Master's or Doctoral income-contingent repayment student loans is RPI +3%. The applicable RPI rate is 4.3% for the period from 1 September 2024 to 31 August 2025. From 1 September 2024 until 31 August 2025, the interest rate for Plan 3 loans will be 7.3%. This rate is subject to any caps to reflect the Prevailing Market Rate.
Plan 4
There is limited information on Plan 4 loans. The interest rate for Plan 4 loans is charged at 7.3% while the borrower is still studying. The income threshold for Plan 4 loans is £36,000 per year.
Plan 5
Plan 5 loans are available in England. The interest rate for Plan 5 loans is set at RPI only, which is lower than for Plan 2 loans. This means 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).
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Average debt
The average student loan debt in the UK varies depending on the country within the UK and the level of study. For instance, in 2024, students graduating from English universities had an average loan debt of £48,470, compared to £37,360 in Wales, £25,730 in Northern Ireland, and £16,680 in Scotland. The average debt among borrowers who finished their course in 2024 was £53,000 when they first became liable to repay their debt.
For postgraduates, the average student loan debt is around the £24,000 mark, as postgraduate fees tend to be lower. According to 2023 statistics, an undergraduate student is left with an average debt of £45,000 after studying. The average loan debt and the overall scale of loans have increased over time as the government has shifted funding for maintenance and teaching to loans. This has led to concerns about the burden of debt, high-interest rates, and the cost of loans to taxpayers.
The amount of student debt young people face in the UK has risen over the past few decades. In 1999-2000, students who studied in the UK left university with around £2,690 in debt. By 2010-2011, students from England had around £16,160 in debt, which was significantly higher than the debt owed by students in Scotland and Wales. Today, those who study in England continue to owe tens of thousands more than those in other UK countries. In fact, as of 2022, student loan debt had risen by 1578% in England since 2000.
The UK government expects only 20% of new graduates to repay their loans in full. Graduates repay student loans to the government after their earnings exceed a certain threshold. These loans are a form of private contribution towards the costs of higher education. The student loan system aims to ensure that upfront costs do not deter potential students. Graduates repaying student loans generally have above-average incomes.
The amount repaid depends on the graduate's income, with repayments being a percentage of income over the threshold. Repayments are taken automatically from salaries, and graduates only repay a percentage of their income over the threshold. If a graduate's income falls below the threshold, they do not have to make any repayments.
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Repayment thresholds
For the 2024-2025 period, the Retail Price Index (RPI) is set at 4.3%. The repayment threshold for undergraduate Plan 1 loans will be £26,065, while Plan 2 will increase to £28,470. Postgraduate loans and Plan 5 loans have fixed thresholds of £21,000 and £25,000, respectively.
The amount repaid each month depends on the loan plan and income level. For example, an individual on Plan 1 with an annual income of £33,000, or £2,750 per month, would repay £52 per month. On the other hand, an individual on Plan 4 with the same income would repay £24 per month.
It is important to note that student loans are written off after a certain period, typically 30 years. For instance, Plan 1 loans are written off after 25 years or when the borrower turns 65, while Plan 2 loans are cleared 30 years after the repayment start date.
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Loan types
In the UK, there are several types of loans available to students, each with its own unique features and repayment terms. Here is an overview of the common loan types:
- Tuition Fee Loan: This loan is provided to cover the cost of tuition fees, which are set by the university or college. The loan is paid directly to the educational institution and must be repaid by the student. The amount offered can vary, with full-time students eligible for up to £9,535, while those on accelerated degree courses may receive up to £11,440.
- Maintenance Loan: The Maintenance Loan is designed to support students with living costs and other expenses while studying. It is paid directly into the student's bank account at the start of each term. The maximum amount available depends on the student's location and their household income. Distance learning students can only access this loan if they cannot attend their course in person due to a disability.
- Long Course Loan: Students enrolled in courses lasting longer than 30 weeks and 3 days may be eligible for a Long Course Loan as part of their Maintenance Loan. This additional funding recognises the extended duration of these courses.
- Plan 1 and Plan 2 Loans: These loan plans have different income thresholds and repayment structures. For example, Plan 1 has a lower threshold than Plan 2. If a borrower's income exceeds the threshold for Plan 1 but remains below the Plan 2 threshold, they will only repay 9% of their income over the Plan 1 threshold. The interest rate for Plan 2 (post-2012) loans is currently 7.3%, the same rate applicable to postgraduate loans.
- Pre-1998 'Mortgage-Style' Loan: Students who started university before 1998 typically had access to an older loan system, often referred to as a 'mortgage-style' loan. This system differs from the more recent loan plans introduced after 1998.
It is important to note that loan types and repayment plans can vary based on the student's location within the UK (England, Northern Ireland, Scotland, or Wales), and it is always advisable to refer to official government sources for the most up-to-date information.
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Frequently asked questions
How much students repay depends on their income. Graduates only start repaying their loans when their earnings exceed the threshold level. The threshold varies depending on the loan plan. For example, the threshold for Plan 1 is £2,172 per month, while for Plan 2 it is £2,372. Students repay 9% of their income over the threshold.
No, not all students fully pay off their loans. It is expected that around 56% of full-time undergraduates starting in 2024/25 will repay their loans in full. This percentage has increased due to reforms to student loan repayments for new students.
The average forecast loan outlay per undergraduate borrower per year is £15,290. Students may take out a tuition fee loan, a maintenance loan, or both. On average, full-time undergraduate students borrow £8,760 in tuition fee loans and £7,600 in maintenance loans.
It is generally not recommended for students to pay off their loans early. Student loans have a low-interest rate, so the cost of the loan is often lower than the interest that could be earned by saving or investing the money instead.
