Tax Guide: Student Loan Repayments UK 2025/26 — Plans, Thresholds, Interest Rates and How to Pay Less

The UK student loan system has evolved significantly since its introduction, creating five distinct repayment plans. Your plan type determines your repayment threshold, interest rate and when your loan is written off. According to GOV.UK guidance, the earliest you'll start repaying is the April after you leave your course.

Plan 1 applies to English and Welsh students who started undergraduate courses before 1 September 2012, and to all Northern Irish undergraduate students. Plan 2 covers English and Welsh undergraduates who started on or after 1 September 2012. Plan 4 replaced the old Plan 1 for Scottish students from April 2021. The newest addition, Plan 5, applies to students starting courses from August 2023 onwards under the reformed system.

Postgraduate Loans operate separately, covering Master's and Doctoral loans taken from 2016/17 onwards. If you have loans across multiple plans, repayments are coordinated — you won't pay double, but the mechanics are more complex than many borrowers expect.

Your plan type is shown on your payslip and in your Student Loans Company (SLC) online account. If you're unsure which plan you're on, checking your SLC account should be your first step.

Repayment thresholds — the income level above which you start making repayments — vary significantly between plans. According to GOV.UK's repayment guidance, the current thresholds are:

• Plan 1: £26,065 per year (£2,172/month)
• Plan 2: £28,470 per year (£2,372/month)
• Plan 4: £32,745 per year (£2,728/month)
• Plan 5: £25,000 per year (£2,083/month)
• Postgraduate Loan: £21,000 per year (£1,750/month)

For Plans 1, 2, 4 and 5, you repay 9% of your income above the threshold. For Postgraduate Loans, the rate is 6%. These percentages are applied to your gross income — what you earn before tax and other deductions.

Thresholds are assessed per job, not on combined income. If you have two part-time jobs each paying £20,000, neither exceeds any threshold, so no automatic deductions are made. However, if you complete a Self Assessment tax return, HMRC will calculate repayments on your total annual income. This is an important distinction for those with multiple income sources — see our guide to how your payslip works for more on understanding your deductions.

The percentage-over-threshold system means your actual monthly repayment depends entirely on your salary. Here's what borrowers at different income levels would pay under each plan:

Earning £30,000 per year (£2,500/month):

• Plan 1: 9% × (£2,500 − £2,172) = £29.52/month
• Plan 2: 9% × (£2,500 − £2,372) = £11.52/month
• Plan 4: Below threshold — no repayment
• Plan 5: 9% × (£2,500 − £2,083) = £37.53/month
• Postgraduate: 6% × (£2,500 − £1,750) = £45.00/month

Earning £40,000 per year (£3,333/month):

• Plan 1: 9% × (£3,333 − £2,172) = £104.49/month
• Plan 2: 9% × (£3,333 − £2,372) = £86.49/month
• Plan 4: 9% × (£3,333 − £2,728) = £54.45/month
• Plan 5: 9% × (£3,333 − £2,083) = £112.50/month
• Postgraduate: 6% × (£3,333 − £1,750) = £94.98/month

It's worth noting that if you have both an undergraduate loan and a Postgraduate Loan, you'll make separate repayments for each — 9% over the undergraduate threshold plus 6% over the Postgraduate threshold. Combined with income tax and National Insurance, this creates a significant marginal deduction rate for graduates in the £25,000-£50,000 salary band.

Student loan interest rates are set by the government and change each September, linked to the Retail Price Index (RPI) or the prevailing market rate. For 2025/26, the Student Loans Company applies the following rates:

• Plan 1: 3.2%
• Plan 4: 3.2%
• Plan 5: 3.2%
• Plan 2 (earning ≤£28,470): 3.2%
• Plan 2 (earning £28,471–£51,245): 3.2% to 6.2% (scaled with income)
• Plan 2 (earning ≥£51,245): 6.2%
• Postgraduate Loan: 6.2%

Plan 2's sliding scale is particularly significant — higher earners are charged more interest, which can mean their balance grows faster than they repay it in the early years of their career. With the current Bank of England base rate at 4.50%, the gap between student loan interest and savings rates has implications for whether voluntary early repayment makes financial sense.

For most Plan 2 borrowers earning between £28,470 and £51,245, the interest rate sits somewhere between 3.2% and 6.2%. This means many graduates see their loan balance increase even while making regular repayments — a reality that surprises many when they check their SLC account.

One of the most important — and least understood — features of UK student loans is automatic write-off. Unlike commercial debt, student loans are cancelled after a set period regardless of how much you still owe.

The write-off periods depend on your plan:

• Plan 1: Written off when you turn 65 (if you started before 2006) or 25 years after the April you were first due to repay (if you started from 2006)
• Plan 2: Written off 30 years after the April you were first due to repay
• Plan 4: Written off 30 years after the April you were first due to repay (or when you turn 65 if earlier)
• Plan 5: Written off 40 years after the April you were first due to repay
• Postgraduate Loan: Written off 30 years after the April you were first due to repay

This write-off is crucial for repayment strategy. According to analysis from the Institute for Fiscal Studies, the majority of Plan 2 borrowers will never repay their loan in full — their remaining balance will be written off. For these borrowers, making voluntary overpayments is effectively paying money they'd never have to repay.

Plan 5's 40-year write-off is significantly longer, meaning more borrowers will eventually repay in full. This is a deliberate policy shift from the 2023 reforms. For advice on how student loans interact with broader tax planning, see our tax year end checklist.

The question of whether to overpay your student loan is one of the most common personal finance dilemmas for UK graduates. There's no one-size-fits-all answer — it depends on your plan type, salary trajectory, and loan balance.

When overpaying makes sense:

• You're on Plan 1 or Plan 4 with a relatively small remaining balance (under £10,000)
• You're a high earner who will repay in full regardless of overpayments
• The interest rate on your loan exceeds what you'd earn in a savings account or Cash ISA

When overpaying is likely a waste of money:

• You're on Plan 2 with a typical balance (£40,000+) and a moderate salary — you'll probably never repay in full before the 30-year write-off
• Your loan interest rate is lower than the return on alternative investments like a Stocks and Shares ISA or pension contributions
• You haven't yet maximised your ISA allowance — tax-free growth likely beats loan interest

The MoneyHelper service advises borrowers to check whether they're on track to repay their loan in full before the write-off date. If you're not, voluntary overpayments are simply paying money you'd never have owed.

Student loan administration is largely automated, but errors do happen — and they almost always cost you money.

Overpaying after your loan is cleared. The most common issue is continuing to have deductions taken after your balance reaches zero. If your loan is close to being paid off, contact the SLC to arrange a direct debit for the final months rather than relying on payroll deductions. The SLC should send you a notification when your balance drops below around £600, but processing delays mean many borrowers overpay by several months. Refunds are available but can take weeks to process.

Being on the wrong plan. Some borrowers are incorrectly assigned Plan 1 when they should be on Plan 2, or vice versa. This changes your threshold and can mean paying more or less than you should. Check your plan type on the GOV.UK student loan page and compare it with your payslip.

Ignoring salary sacrifice opportunities. Salary sacrifice schemes reduce your gross pay, which means your income for student loan purposes is lower too. A salary sacrifice pension contribution of £200/month would reduce your student loan repayment by £18/month (9% of £200) on top of the income tax and National Insurance savings — a triple benefit that many graduates overlook.

Not checking your balance. Your SLC online account shows your current balance, interest charged, and repayments made. If deductions on your payslip don't match what's being credited to your account, flag it immediately with HMRC.

This article is for information purposes only and does not constitute regulated financial advice. If you're unsure about your student loan repayment strategy, consider speaking with a qualified financial adviser.