UK student loans are one of the most misunderstood financial products in the country. They look like debt but behave very differently from a bank loan — and for most graduates, the optimal strategy is counterintuitive.
The three student loan plans
| Plan | Who has it | Repayment threshold (2026) | Rate | Write-off |
|---|---|---|---|---|
| Plan 1 | Started before Sept 2012 (England/Wales) | £24,990/year | RPI or Bank Rate + 1% (lower) | Age 65 or 25 years |
| Plan 2 | Started Sept 2012 – July 2023 (England) | £27,295/year | RPI + 0-3% | 40 years |
| Plan 5 | Started Aug 2023+ (England) | £25,000/year | RPI + 0% | 40 years |
The key insight most people miss: it's not really debt
UK student loans are repaid at 9% of income above the threshold. You cannot be chased for the money, it doesn't affect your credit score, and whatever remains is written off after 30-40 years. For the majority of graduates who will never fully repay, it functions more like a graduate tax than a loan.
How repayments interact with your budget
Repayments are deducted automatically by your employer through PAYE, like tax. They're based on income, not loan size. If you earn £35,000 on Plan 2, you repay 9% of £7,705 (earnings above £27,295) = £693/year = £57.75/month. This is a fixed cost in your budget — like NI, it comes out before you see your pay.
Track your budget in pounds
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