Student Loan Repayment UK: Thresholds, Plans, and When Early Repayment Actually Makes Sense

UK student loans are collected automatically through your payslip once your income crosses the repayment threshold for your plan. You pay 9% of everything you earn above that threshold, not 9% of your total salary.

Plan 1 (started before September 2012): the threshold is £22,015. Interest accrues at whichever is lower between RPI and the Bank of England base rate plus 1%.

Plan 2 (started September 2012 onwards): the threshold is £27,295. Interest runs at up to RPI plus 3%, scaled to your income.

Plan 5 (started September 2023): the threshold is £25,000. Interest is capped at RPI only.

The write-off rule is the thing most people miss. Depending on your plan, the remaining balance is cancelled after 25 to 40 years regardless of how much you still owe. Because of this, most graduates will never repay the balance in full before it is written off, and the loan effectively acts as a graduate tax.

That is the trap: voluntary early repayments feel responsible, but for most borrowers they destroy value. If you would never have repaid the full balance anyway, every pound you overpay is a pound gifted to the Student Loans Company for no return. Voluntary overpayments only make financial sense if you are a higher earner genuinely on track to clear the balance before write-off. For everyone else, money earmarked for overpayments is almost certainly better invested or put toward a pension.