Salary Guide · 2025/26
UK Student Loans Explained 2025/26
UK student loans aren\'t conventional debt — they\'re income-contingent and written off after a set period. With 5 different plans (1, 2, 4, 5, postgraduate), it\'s easy to be on the wrong one. This guide covers everything.
What a UK Student Loan Really Is
A UK student loan is fundamentally different from a credit card, overdraft, or commercial personal loan. It is administered by the Student Loans Company (SLC) on behalf of the four UK governments. Repayments are income-contingent: you only pay when your earnings are above a plan-specific threshold, and any outstanding balance is written off after a fixed period regardless of how much has been paid. Because of this, many financial commentators describe it as a graduate tax rather than a debt — although technically it sits on your credit file as «closed-end finance with no impact on credit scoring».
The plan you are on depends on (a) where in the UK you took out the loan and (b) the academic year your course started. You cannot choose your plan, and being on the wrong plan on your payslip is one of the most common UK payroll errors. Always cross-check against the welcome letter from SLC and your online account at studentloanrepayment.co.uk.
All 5 Plans Compared (2025/26)
| Plan | Who | Threshold | Rate | Write-off |
|---|---|---|---|---|
| Plan 1 | England/Wales pre-2012, NI any | £26,065 | 9% | 25 years / age 65 |
| Plan 2 | England/Wales 2012-2023 | £28,470 | 9% | 30 years |
| Plan 4 | Scotland (any year) | £32,745 | 9% | 30 years / age 65 |
| Plan 5 | England from 2023 | £25,000 | 9% | 40 years |
| Postgrad (PGL) | UK postgraduate | £21,000 | 6% | 30 years |
Plan 5 (post-2023 starters) is the worst — 40-year repayment window means most will never be written off and pay 9% «graduate tax» for their whole career.
How Repayments Work
Repayments are 9% of income ABOVE the threshold (6% for PGL). They\'re a marginal «graduate tax» — your top marginal rate becomes 29% (basic) or 49% (higher) including 9% student loan.
If you have BOTH undergraduate AND postgraduate loans, you pay BOTH simultaneously — that\'s 9% + 6% = 15% extra on top of normal tax. Marginal rate becomes 35% basic / 55% higher.
Worked example: Plan 2 graduate on £45,000:
- £45,000 − £28,470 threshold = £16,530 «excess»
- 9% × £16,530 = £1,488 per year (£124/month) student loan deduction
Interest Rate (UK)
Interest tracks the lower of RPI or RPI+3% depending on income. As of September 2025: Plans 2/4/5 ~7.3%; Plan 1 ~4.3%; Postgrad ~7.3%. For most Plan 2 graduates, interest already exceeds repayments — balance grows over the 30 years.
Should You Overpay?
For most Plan 2 graduates: NO. The loan is written off after 30 years. If you wouldn\'t pay it all off naturally, overpaying just gives money to the government you wouldn\'t have paid anyway.
Plan 5 (post-2023): Probably yes if you can. 40-year write-off means most WILL pay it all back, plus more interest. Earlier overpayments save lifetime interest.
Run the maths with our Student Loan Calculator and SLC\'s Repayment Calculator before deciding.
Marginal Tax Rate Including Student Loan
Although the deduction is only 9% of earnings above the threshold, you need to add it to your normal Income Tax and National Insurance to understand the real marginal cost of every extra pound you earn. The figures below assume you are working under rUK (England, Wales, Northern Ireland) tax bands for 2025/26 and have a standard 1257L tax code.
| Earnings band | Income Tax | Employee NI | SL Plan 2/5 | Total marginal |
|---|---|---|---|---|
| £12,570 - £28,470 | 20% | 8% | 0% | 28% |
| £28,470 - £50,270 | 20% | 8% | 9% | 37% |
| £50,270 - £100,000 | 40% | 2% | 9% | 51% |
| £100,000 - £125,140 (PA taper) | 60% | 2% | 9% | 71% |
Add another 6% if you also have a Postgraduate Loan — between £50,270 and £100,000 your marginal cost reaches 57%, and in the personal-allowance taper zone above £100,000 it can hit 77%. This is why pension salary sacrifice is particularly attractive for graduates earning over £50,270: not only do you save Income Tax and NI on the sacrificed amount, you also reduce the income that 9%+6% is calculated on.
Worked Examples Across Plans
Example 1 — Plan 5 graduate on £32,000 (post-2023 starter):
- £32,000 − £25,000 threshold = £7,000
- 9% × £7,000 = £630/year (~£52/month)
- Write-off after 40 years — most likely to repay in full
Example 2 — Plan 4 (Scottish) graduate on £40,000:
- £40,000 − £32,745 threshold = £7,255
- 9% × £7,255 = £653/year (~£54/month)
- 30-year write-off, age 65 cap
Example 3 — Plan 2 undergraduate + Postgraduate loan, salary £55,000:
- Undergraduate: 9% × (£55,000 − £28,470) = £2,388/year
- Postgraduate: 6% × (£55,000 − £21,000) = £2,040/year
- Combined student-loan deductions: £4,428/year (~£369/month)
Self-Assessment and Side Income
If you also file a Self Assessment return — for instance because you have rental income, self-employment, or savings interest above the savings allowance — HMRC will calculate an additional student-loan repayment on that unearned income. The threshold is applied to your total income, not just your PAYE wages, so a graduate with a £45,000 salary and £5,000 of rental profit will pay an extra 9% × £5,000 = £450 when filing their tax return by 31 January.
Self-employed graduates pay their entire 9% (or 6% postgrad) repayment via Self Assessment based on profits above the threshold. Class 4 National Insurance is calculated separately. See our Self-Employed Tax Guide for the full picture.
Repaying While Working Abroad
Leaving the UK does not cancel your student loan. You must inform SLC of any planned absence over 3 months and complete an Overseas Income Assessment. SLC then sets a fixed monthly repayment based on the country's «price-of-living» threshold (typically lower in lower-cost countries and higher in places like Switzerland or the United States). Failure to declare overseas income triggers a fixed monthly penalty repayment at the top of the relevant band — often hundreds of pounds per month — and HMRC can pursue the debt through international debt-collection arrangements.
The overseas thresholds are published yearly by SLC and were last updated in April 2025. Country categories run from Category 1 (lowest cost) through to Category 5 (highest cost), with thresholds scaling proportionally to the UK figure.
Common Mistakes
- Wrong plan on payslip: Many employees enrolled on Plan 1 should be Plan 2 (or vice versa). Check your loan letter from SLC, then update employer.
- Continuing payment after threshold: If you drop below threshold mid-year, repayments stop the next pay period — but employers sometimes lag.
- Forgetting to switch off after paying off: SLC may take 2-3 months to notify HMRC. You can claim back overpayments.
- Repayments while abroad: Still required! Self-report to SLC via «Overseas Income Assessment» — high-income expats pay more, low-income less.
- Treating it like normal debt: Income-contingent, no impact on mortgages (excluded from affordability), interest doesn\'t compound traditionally.
Frequently Asked Questions
Does my student loan appear on a credit check?
Should I pay extra to clear the loan quickly?
What happens if I never earn above the threshold?
Can I check my balance online?
I have both Plan 2 and Plan 5 — is that possible?
Related Guides
- UK Payslip Explained — see where student-loan deductions appear
- Tax Codes Explained
- National Insurance Explained
- Salary Sacrifice Guide — reduce student-loan deductions on excess pension
- gov.uk/repaying-your-student-loan — official HMRC and SLC guidance