How is student loan interest treated for tax purposes in the UK in 2026?

Full answer

Student loan interest in the UK is treated very differently from, say, mortgage interest or business loan interest. There is no tax relief on student loan interest -- the interest that accrues on your student loan balance does not reduce your taxable income. **What student loan interest IS:** - Accrues daily on your outstanding loan balance - Rate depends on your plan and income: - Plan 2: RPI + 0% to 3% depending on income (£29,385 = RPI only; £49,130+ = RPI + 3%) - Plan 5: RPI only - Plan 1: Bank of England base rate + 1%, or RPI if lower - Postgraduate Loan: RPI + 3% **What it is NOT:** Not a tax. Not deductible. Does not reduce your Income Tax, NI, or CGT liability. **Repayments -- how they interact with tax:** Student loan repayments are calculated as 9% (or 6% for postgraduate) of income above the relevant threshold. For employees, they are collected through PAYE alongside PAYE Income Tax and NI. For self-employed individuals, repayments are declared on the Self Assessment return and collected alongside the tax and NI bill. **Why does this matter?** The repayment acts economically like a marginal tax rate increase. A Plan 2 basic-rate taxpayer earns above the £29,385 threshold: their effective marginal rate on that income is 20% (IT) + 8% (NI) + 9% (SL) = 37%. This is important for salary negotiation and pension planning decisions. **Write-off:** Remaining balances are written off after the relevant period (25-40 years depending on plan) without any income tax charge -- the write-off is not taxable income. **One exception -- employer-paid student loan repayments:** If your employer repays your student loan as a benefit, that is a taxable benefit in kind (Income Tax and NI apply) unless structured as a loan forgiveness through a registered employer scheme (which is not a standard arrangement in the UK).

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