Student loan repayment calculations

CONTENTS

1. Student loan repayment calculations – why should you bother?

2. What you really need to know

3. Won’t high interest rates increase my loan?

4. Student loan repayment plans

5. Student loan repayment FAQs

Student loan repayment calculations – why should you bother?

Student loans may come across as complicated and a scary amount of debt. But also something that you can ignore until you've finished uni and got a job, when the repayments will finally become a reality.

Yet it's worth getting your head around how student loan repayments work, because you could end up repaying more than you should. And you won't get that money back unless you ask for it!

What you really need to know

There's been a lot about student loan interest rates in the media – and the amount of debt students may owe. But what you really need to know is the repayment threshold, because that determines what you actually pay.

Now here's the thing. You only make repayments if your income is higher than the repayment threshold set by the government. But as well as an annual threshold, there are ones that apply per month or per week. And if you're paid on a weekly or monthly basis and do a bit of overtime, or have variable pay, it could take you over that threshold. Your employer will take your tax through the PAYE system (pay as you earn), and your repayment is sent to the Student Loans Company.

If your annual income turns out to be below the repayment threshold, then you shouldn't have made a repayment. But you won't get a refund unless you ask the Student Loans Company for it.

Perhaps you think it's not worth the effort – after all, it's still going towards paying back your student loan, isn't it?

But here's another thing. Most students won't pay off the loan in full because it gets cancelled after a certain number of years. If you don't reclaim a payment you shouldn't have made, then you simply end up paying more than you need to.

Other reasons you might make an overpayment are:

• If your employer has you on the wrong repayment plan (more on this below).
• If your employer takes deductions from your salary before you are due to repay. Your repayments are only meant to start the April after you leave your course. For most, that's almost a year after graduating.
• If your employer sends payments after your loan has been repaid in full.

You might think it's unlikely you'll be caught out. But in 2023–24, the Student Loans Company made over 216,000 refunds, to the value of £61.1 million...

It's also worth knowing how much your repayments are likely to be, so you get an idea of how they impact your earnings. Depending on your loan plan, the repayment threshold may be higher than the average salary for a new graduate – so the impact on your take-home pay may be less than you think.

Won’t high interest rates increase my loan?

Yes, loans have interest applied – and when these go up, it’s always big news. But while they will change the overall amount you owe, they make no difference to your monthly payments.

All loans will be written off after 25–40 years (depending on the plan you are on). So loan interest is mostly going to affect high earners who could pay off their loan before that time. If you are unlikely to repay the loan in full, then what you still owe at the end of that time will be written off – whether it’s a lot or a little.

Student loan repayment plans

To work out what you'll pay, you need to know which repayment plan your loan comes under.

The repayment plan you're on will depend on two things. First, when you started your university course. Second, which nation you were living in before you started studying.

You may be on more than one plan if you’ve taken out more than one loan, for example, for undergraduate (UG) or postgraduate (PG) study.

• Plan 5 started in August 2023 for undergraduates from England. Undergraduates from Wales remain on Plan 2.
• Plan 1 also applies if you were a student from England or Wales who took out a loan between September 1998–August 2012.
• If you were an EU student from outside the UK who got only a tuition fee loan, your plan will depend on where you studied and when you took out that loan.

In all cases, repayments are only due from the April after you finish your course – or four years after you began your course if you’re studying part-time. Even then, you’ll only pay once your income (before tax and other deductions) is above the threshold set for your plan.

If you don't know your repayment plan or don't tell your employer, then PAYE guidance says employers should make Plan 1 deductions. If you're actually on Plan 2 or Plan 4, there's a significant difference in the repayment threshold, and you'll be paying a lot more than you should.

Repayment Plan 1

From April 2025, repayments under this plan start when you earn over:

• £26,065 a year
• £2,172 a month
• £501 a week

This threshold changes every April.

You pay 9% of the amount you earn over the threshold. For example, if your salary is £30,000, your monthly income would be £2,500. This means you’d earn £328 more than the current threshold. Your student loan repayment would be 9% of this amount – around £29.50 per month.

Interest rates are usually set in September but may change ad hoc. Although they are based on the cost of living (measured by the Retail Price Index or RPI), they are capped if the Bank of England ‘base rate’ interest is low.

Repayment Plan 2

Repayments under Plan 2 start when you earn over:

• £28,470 a year
• £2,372 a month
• £547 a week

Thresholds change on 6 April every year to keep pace with average earnings.

In this case, a monthly income of £2,500 is £128 above the current repayment threshold, and you would pay 9% of this amount – £11.52 per month.

The interest rates for Plan 2 are more complicated than those for Plan 1, taking your income into account. Plan 2 has higher interest rates for those on a salary above £27,295.

Loan interest rates are set in September each year and apply until the following August. Normally, these are based on the RPI rate from the previous March. But there's now a cap in place to keep interest in line with market rates for personal loans. This means if inflation pushes up the RPI, the above 'RPI plus 3%' may not apply.

You’ll also be charged interest while studying. From the date you receive your first payment until the April after you leave your course, the interest rate is normally RPI plus 3%.

Remember, while the interest rates may increase the amount of loan you owe, it doesn’t affect your monthly repayments.

Postgraduate loan (Repayment Plan 3)

For a postgraduate loan from England or Wales (Master’s Loan or Doctoral Loan), repayments start when you earn over:

• £21,000 a year
• £1,750 a month
• £403 a week

Unlike other student loans, there's no annual increase to this threshold.

You pay 6% of the amount you earn over the threshold. For example, if you earn £2,500 a month, you’ll pay back 6% of the £750 you earn over the threshold – £45 per month.

Postgraduate loan interest is RPI plus 3%. Normally set in September for the year ahead, it's based on the RPI from the preceding March. There can be short-term variations to keep interest rates in line with the market rates for personal loans.

Students with a postgraduate loan from Northern Ireland are on Plan 1; those from Scotland are on Plan 4.

See our FAQ below for how repayments work if you have an undergraduate and a postgraduate loan.

Repayment Plan 4

Plan 4 was introduced in April 2021, but it applies to any student from Scotland who was previously on Plan 1. The repayment threshold is:

• £32,745 per year
• £2,728 per month
• £629 per week

This threshold changes every April.

You repay 9% of your income above this amount. If you earn £2,500 per month, you won't pay a thing! So, let’s say you earn £3,000 a month. Then you'd be £272 above the current threshold, of which 9% will be due in repayments – £24.48 per month.

Plan 4's interest rates are based on last March's Retail Price Index. If the bank base rate is lower, they'll be set at 1% more. They may change during the year.

Repayment Plan 5

Plan 5 is for students from England taking out undergraduate student finance after 1 August 2023. No repayments will be taken until after April 2026, at which time the repayment threshold will be:

• £25,000 per year
• £2,083 per month
• £480 per week

Thresholds will increase each year.

You repay 9% of your income above this threshold. If you earn £2,500 per month, that’s £417 over the threshold and 9% of this amount will be due in repayments – £37 per month.

Interest rates for Plan 5 will be based on the Retail Price Index.

Student loan repayment FAQs

Repaying more than one plan

You might be on more than one plan. If so, your repayments will start once your income is more than the lowest repayment threshold of the plans you’re on.

• If you do not have a Plan 3 postgraduate loan (England and Wales), you’ll repay 9% of your income above the threshold. A proportion will go into each plan you’re repaying.
• If you do have a Plan 3 postgraduate loan, this is treated independently of other loans. It means you’ll repay 6% of your income over the Plan 3 threshold plus 9% of your income over the other loan threshold.

Let’s assume your annual income is £35,000. You have a Plan 1 loan from Northern Ireland for an undergraduate degree. You also have a Plan 4 loan from Scotland for postgraduate study, having moved there.

• Plan 1 has the lowest repayment threshold of the two, at £26,065. Your income is £8,935 more than this. It means you’ll pay 9% of this amount across the year – just over £67 per month.
• If you only had a Plan 1 loan, all the money you pay would go towards paying off that plan. As you have a Plan 1 and a Plan 4 loan, the loan repayment will be split between them.
• You still pay the same amount – £67 per month – but you are paying off both loans.
• If you earn less than the Plan 4 threshold, you will still pay the same amount – £67 per month. Even so, a tiny amount of what you pay will go towards paying off your Plan 4 loan.

Or, you could earn £35,000 but have a Plan 2 undergraduate and Plan 3 postgraduate loan from England:

• Your Plan 3 loan has a repayment threshold of £21,000. Your income is £14,000 more than this. It means you’ll pay 6% of this amount across the year – £70 per month.
• Your Plan 2 undergraduate loan has a repayment threshold of £28,470, so your income is £6,530 more than this. You’ll pay back 9% of this amount – £48.98 per month.
• Your total monthly repayments are £70 plus £48.98 – a total of £118.98

What happens if you live or move abroad?

Student loans will still have to be repaid even if you live or move abroad for more than three months. Make sure you inform the Student Loans Company (SLC) of your employment and which country you live in, so they can calculate what you need to repay. If you don’t, you may be charged the highest interest rate while you’re away. 

The repayment rules stay the same. But different countries have different thresholds for repayment. Find out the thresholds and abroad rate of repayment for Plan 1, Plan 2, Postgraduate and Plan 4 loans.

Does my student loan get written off?

Your student loan will get written off after a number of years, calculated from the April after you graduate. The Student Loan Company will cancel your loan once you’re 65 if you took out a loan before or including 2005–2006 (or 2006–2007 if from Scotland). Otherwise:

• Plan 1 writes off student loans after 25 years.
• Plan 2, Plan 3 (postgraduate) and Plan 4 writes off student loans after 30 years.
• Plan 5 will write off student loans after 40 years.

Contrary to popular belief and rumour, your student loan won’t be written off or cancelled if you move abroad for any number of years.

But it’s likely that only higher earners will have repaid their loan in full before it's cancelled. If you're on Plan 5, you are likely to repay more of what you owe because the repayment period is longer.

If you can no longer work because of a permanent disability and receive benefits because of this, your student loan may be cancelled. Contact the Student Loan Company with the evidence required and your customer reference number.

How do I reclaim a student loan overpayment?

You'll need to wait until after the end of the whole tax year (6 April to 5 April the following year). The Student Loans Company will need to confirm your annual income with HMRC (tax revenue).

You can also only reclaim money if your overall income for the year was below the lowest repayment threshold of any loan you owe. Which may be as low as £21,000 if you took out a postgraduate loan from England or Wales.

To reclaim, sign into your student loan repayment account and ask for a refund. Or if you are unable to do this, you can call or contact the Student Loans Company – you'll need your customer reference number.

If you have nearly paid off your loan – yes, for some people this might happen! – the government suggests you swap to making repayments by direct debit rather than through your salary. You're allowed to do this if you're within 23 months (around two years) of paying off your loan.

Can you pay your loan off quicker?

It’s possible to pay off your student debt faster by making extra repayments, over and above the normal repayments you make.

Think carefully and do your maths before doing this.

If you’re a high earner, it’s worth careful consideration. If you have a Plan 2 loan, your loan is subject to a higher interest rate, based on your income. As you see your debt grow, you may decide to make extra repayments to help reduce the balance.

However, if you miscalculate, you may not repay your loan before the cancellation date. This would make your extra repayments in vain. You cannot get extra repayments refunded. This is true even if your circumstances change or your income falls below the threshold.

For most, your loan is more likely to be written off than repaid in full, and extra repayments won’t change that outcome.

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