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Student loans: Interest rates and repayment thresholds FAQs

What are the different student loan repayment plans?

There are five student loan repayment plans for UK borrowers. A borrower’s repayment plan is determined by where they lived when they took out their loan, when they started their course, and what type of course they studied.

• Plan 1 loans are those taken out between August 1998 and September 2012 by borrowers in England and Wales. All borrowers in Northern Ireland are also on plan 1.
• Plan 2 loans are those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales and between 1 September 2012 and 31 July 2023 in England.
• Postgraduate/plan 3 loans are those taken out for master’s or doctoral courses by borrowers in England and Wales.
• Plan 4 loans are for all borrowers in Scotland.
• Plan 5 loans are for undergraduate and PGCE courses started by borrowers in England after 1 August 2023.

Each student loan repayment plan will have different terms and conditions for borrowers. When taking out their student loan, borrowers agree to repay it in line with the relevant regulations at the time repayments are due, accepting that the regulations and terms of their loan may change. 

How are student loan interest rates calculated?

Interest rates are generally set on 1 September each year, using the Retail Prices Index (RPI) of the previous March. RPI is a measure of inflation that tracks changes to the cost of living in the UK. RPI has generally been higher than other price indices and its use is discouraged by the Office for National Statistics.

For the period 1 September 2026 to 31 August 2027, the applicable rate of RPI is 4.1%. Plans 1 and 4 may use the bank base rate, which is the official interest rate set by the Bank of England, instead of RPI. The current interest rates for each repayment plan, and how they are calculated, is set out on gov.uk.

Interest rates may change during the year, but rates for plans 2, 3, and 5 are subject to caps to reflect the “Prevailing Market Rate”. On 7 April 2026, the government also announced a specific 6% cap for plans 2 and 3. This cap is in place between 1 September 2026 and 31 August 2027, “to provide borrowers with certainty in an uncertain world”. It will not affect monthly repayment amounts, but it will reduce the total amount of interest accrued by plan 2 borrowers during study, higher earning plan 2 borrowers, and postgraduate/plan 3 borrowers.

The table below sets out how interest for each repayment plan is calculated, as well as the current rate as at September 2026.

Why do some people pay a higher interest rate on their student loan than others?

The interest rates for plan 2 and 3 loans are higher than for other plans because they include a “real interest rate” of up to 3%. This is added to the loan on top of the rate of RPI inflation. In contrast, the maximum interest rate on plan 5 loans is set at RPI inflation only, while for plan 1 and 4 loans it is the lower of either RPI or the bank rate plus 1%.

The addition of a real interest rate is intended to make the funding system more progressive, so higher earners make more of a contribution to the costs of higher education than lower earners. This practice was adopted for plan 2 loans following a review of higher education funding in 2010, known as the Browne Review. This review recommended graduates should pay for their higher education in proportion to the financial benefit they receive. Charging a real interest rate on loans also reduces the public subsidy for higher education from the taxpayer, making the student loans system cheaper than it would otherwise be for the government. 

As part of a subsequent review of higher education between 2018 and 2022, the Augar report recommended that real interest rates should be removed during a borrower’s period of study but retained for when they were earning. On concluding the review in February 2022, however, the then-Conservative government chose to remove the real interest rate for new plan 5 student loans altogether. It also made several other reforms to student loan repayment terms, which will see more borrowers repay their loans in full under plan 5.

What are the student loan repayment thresholds?

Each student loan plan has a different income threshold at which borrowers start to make repayments. This is linked to how often a borrower gets paid, with loan repayments taken out of an employee’s salary at the same time as tax and National Insurance.

Borrowers on plans 1, 2, 4, or 5 repay 9% of any income over the relevant threshold, while postgraduate/plan 3 borrowers repay 6% of income over the threshold.

Borrowers can ask for a refund for any overpayments at the end of the tax year, but only if their annual income is less than the yearly threshold for their plan.

Previous annual repayment thresholds are published on gov.uk. The plan 2 threshold was supposed to increase “periodically to reflect earnings” (this was legislated for in 2018), but it was increased significantly in 2018, before being frozen several times between 2021 and 2025. In 2025, the uprating mechanism changed to RPI inflation (PDF, p24). At the 2025 budget, the government said the plan 2 threshold for borrowers from England would increase to £29,385 from April 2026 and then be frozen at that level for three years from April 2027 (PDF, p108). The Welsh Government has said it will not freeze the repayment threshold in this way for borrowers from Wales.

The postgraduate/plan 3 loan repayment threshold has remained at £21,000 since the plan’s introduction. The plan 5 threshold will remain at £25,000 until April 2027, when it is intended to increase annually in-line with RPI inflation (PDF, p25).

Do interest rates affect how much a borrower repays?

Interest rates on student loans affect only a borrower’s total loan balance. They do not affect how much a borrower must repay each month. Monthly repayment amounts are instead determined by a borrower’s loan plan, their salary, and the country where they live. For example, plan 2 borrowers living in the UK will generally repay 9% of everything they earn above the current annual salary repayment threshold of £29,385. Repayments pause if a borrower’s salary drops below the threshold and stop after 30 years, with any remaining loan balance written off.

The interest rate for plan 5 borrowers is lower than for most plan 2 borrowers, because it is set at RPI only. This means total loan balances will be lower for plan 5 borrowers, who will not pay back more than they borrow in real terms. However, plan 5 loans have a longer repayment period and currently a lower salary repayment threshold compared to plan 2 loans. This will result in higher total repayments for lower earning graduates and lower total repayments for those who earn the most.

See analysis by the Institute for Fiscal Studies and the Commons Library for more information.

Why might student loan balances increase despite regular repayments?

Student loan balances are determined by the amount of money borrowed, any interest accrued, and how much a borrower repays.

Interest is charged from the day of the first payment made by the Student Loans Company and is added to the loan balance each month. Monthly repayment amounts are determined by a borrower’s annual salary. No repayments are made when a borrower is not working or earning below the relevant salary threshold. If the monthly interest accrued on a student loan is greater than the monthly repayment amount, a borrower’s loan balance will increase. However, it is important to remember that a borrower's loan balance will be cancelled in full at the end of their repayment period.

For many borrowers, the size of their loan balance will have little bearing on their actual lifetime repayments. So long as a borrower has an outstanding loan, repayment amounts depend on their income not how much they owe. Only a third of the plan 2 borrowers who started studying full-time in 2022/23 are expected to repay their loan in full, with any unpaid balances effectively covered by the government.

Are student loan interest rates capped?

The Department for Education and Welsh Government review student loan interest rates monthly against the interest rates prevailing on the market for comparable loans. If necessary, they cap rates for plan 2, 3, and 5 loans for the duration of the calendar month to reflect the “Prevailing Market Rate”.

Between 1 September 2023 and 31 August 2024, for example, the applicable rate of RPI was 13.5%, which meant the maximum interest rate for plan 2 and 3 loans would have been 16.5%. Instead, rates were initially capped at 7.3% before this increased over the next twelve months to reach 8%. See section 4 of the Commons Library research briefing Student loan statistics for more information.

On 7 April 2026, the government announced interest rates on plan 2 and 3 student loans would be capped at 6% from 1 September for the 2026/27 academic year to “protect students and graduates in England and Wales from the potential of inflation pressures due to the situation in the Middle East.” This cap is different to the prevailing market rate cap. The Minister for Skills, Jacqui Smith, said: 

We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not. 

Capping the maximum interest rate on Plan 2 and Plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system. 

The government’s announcement followed several months of heightened media scrutiny of student loan repayment terms and their impact on graduate borrowers.

What has the government said about interest rates and repayment thresholds?

In response to parliamentary questions about interest rates, the current Labour government has said:

Student loans are subject to interest so that those who can afford to do so contribute to the full cost of their degree. To consider both students and taxpayers and ensure the real value of the loans over the repayment term, interest rates are linked to inflation.

The government has also said it believes that since graduates can expect to earn, on average, more in their lifetimes than those who do not attend higher education, “it is reasonable to ask graduates who benefit financially from HE [higher education] to contribute towards the cost of their studies.”

The government has also highlighted that interest rates do not affect monthly repayments, as well as other protections unique to student loans. These include:

• repayments are based only on earnings, and if a borrower’s income drops, so does the amount they repay
• if a borrower's income is below the relevant repayment threshold or they are not earning, they do not have to make any repayments 
• any outstanding debt, including accrued interest, is written off when the loan term ends or the borrower dies or is permanently unfit to work.

Repayment threshold freeze for plan 2 loans

The government has said the decision to freeze the repayment threshold for plan 2 loans from April 2027 was made as part of a budget that “asked everybody to make a contribution” and that there has been “a cross-party consensus that a fairer system of university funding will require a lower net contribution to universities from the taxpayer”.

The Institute for Fiscal Studies has highlighted the increased financial contribution that borrowers from England will make to their higher education (PDF, pp93-101) following the changes to plan 2 repayment terms announced at the 2025 budget.

In July 2026, Education Secretary Lucy Powell told the BBC that the government had committed to reviewing aspects of the student loans system, saying the issue was “very much top at the top of my in-tray”. However, the Education Secretary said while it was something that needed looking at, she could not “make any promises”.

Further information

The following Commons Library research briefings may be of interest:

• Student loan statistics provides more information on current and historic interest rate levels.
• Tuition fees in England: History, debates, and international comparisons explains how the student financial contribution to higher education has evolved over time.
• The Post-18 Education and Funding Review: Government conclusion explains the most recent review of student loans that brought about the current system of plan 5 loans in England.