Student Loans
The UK student loan repayment system is confusing af.
Here’s a quick summary of what you need to know about student loans.
You are either on plan one or plan two and they work in very different ways
Plan 1: you started uni before September 2012 (England/Wales), or any time in Northern Ireland
Plan 2: you started uni September 2012 or later in England or Wales (this is the £9k tuition fees generation)
Plan 5: you started uni August 2023 or later in England (newer system, different rules)
The best thing to do to understand how much you are repaying is to log in to your account here.
It will give you a very clear summary of how much you owe, your plan and your current interest rate.
Once you are logged in you’ll see very clearly the amount you in in £.
Just under that there is a hyperlink that says ‘Understanding Repayment’. Click that for a clear breakdown of your exact situation.
Summary of how it works:
Each plan has a different repayment interest rate - basically things got dramatically worse for the plan two’ers - you paid higher fees AND now higher interest rates. Financially painful.
For plan one - everyone is on the same interest rate which fluctuates based on Bank of England base rate and the RPI (retail price index). It takes whichever one is lower of these two rates:
RPI (rate of inflation)
Bank of England base rate +1%
So as a general rule as cost of goods and mortgages get more expensive so will your student loan interest rates.
For plan two the exact amount of interest you pay varies according to your salary.
Higher salary = higher interest rate. The lowest interest rate you pay is whatever the RPI rate is (retail price index). Then depending on how much you earn you will pay up to an additional +3% on top of that RPI figure.
The RPI figure is based on inflation. That means it can get pretty high.
The government just announced a cap of 6% max interest rate from September 2026 to August 2027 to protect you from the high inflation heading this way.
Should you try and pay it off early?
Short answer is no - go read this article by Martin Lewis for a deeper explanation.
Quick fire reasons why:
Most people won’t ever repay the whole thing anyway (only 1 in 3 people on the plan two will pay it off) and the loan therefore gets wiped eventually
Basically all other financial needs take priority over a student loan payoff - other loans, mortgages, house deposits, pensions
It doesn’t impact your credit score so no stress keeping it
You can often make more money elsewhere. If you’re on plan one right now your interest rate is 3.2% but you can make 4.5% in an easy access savings account right now
One more heads up if you’re closing to having it paid off:
Quick thing that is useful to know - the Student Loans Company aren’t the quickest at stopping the automatic repayments coming out of your payslip. So if you are two years away from paying it off it you can contact them and switch to a direct debit repayment so you don’t have the hassle of making extra repayments that you need to get refunded.
