UK Student Loan Repayment Guide 2025: Plan 2, Plan 5, Thresholds, and Rates

UK Student Loan Repayment Guide 2025: Plans, Thresholds & Rates Explained

UK student loans are repaid through the payroll system automatically once you earn above the repayment threshold. Unlike traditional loans, student loans in the UK are more like a graduate tax - repayments are based on income, and any remaining balance is written off after a certain period (typically 25-30 years after graduation, depending on the plan). Understanding which plan you're on, the repayment thresholds, rates, and how repayments affect your take-home pay is essential for financial planning, especially for graduates entering the workforce.

Plan 2 Student Loans (2012-2023 Students)

Plan 2 loans apply to students who started university in England or Wales between September 2012 and July 2023. Key features include: Repayment threshold: £27,295 per year (£2,274 per month) for the 2025 tax year. Repayment rate: 9% of earnings above the threshold. Interest rate: Variable, typically RPI (Retail Price Index) + up to 3%, currently around 7-8% but capped. Write-off period: After 30 years, any remaining balance is written off. Example: If you earn £40,000 per year, you repay 9% of (£40,000 - £27,295) = 9% of £12,705 = £1,143.45 per year, or approximately £95 per month. Plan 2 loans apply to most current graduates and recent graduates working in the UK.

Plan 5 Student Loans (2023+ Students)

Plan 5 loans apply to students who started university from September 2023 onwards in England. Key differences from Plan 2: Lower repayment threshold: £25,000 per year (£2,083 per month), meaning repayments start at lower income levels. Same repayment rate: 9% of earnings above threshold. Longer repayment period: 40 years before write-off (increased from 30 years). Lower interest rate cap: Interest is capped at RPI only (no additional 3%), making it more favorable for higher earners. Example: If you earn £40,000 per year, you repay 9% of (£40,000 - £25,000) = 9% of £15,000 = £1,350 per year, or approximately £112.50 per month. Plan 5's lower threshold means graduates start repaying sooner, but the interest cap benefits those who will fully repay their loans.

Plan 1 Student Loans (Pre-2012 Students)

Plan 1 loans apply to students who started university before September 2012. Key features: Higher repayment threshold: £24,990 per year (2025), Lower interest rate: Typically RPI or Bank of England base rate + 1%, whichever is lower, Write-off period: 25 years after graduation. Plan 1 is generally more favorable than Plan 2 for borrowers, with lower interest rates and shorter repayment periods.

Postgraduate Loans

Separate postgraduate master's and doctoral loans are available: Master's loans: Repayment threshold £21,000 per year, 6% repayment rate on earnings above threshold. Doctoral loans: Similar structure with 6% repayment rate. These are separate from undergraduate loans, meaning you can have multiple student loan repayments if you have both undergraduate and postgraduate loans.

How Student Loans Affect Your Net Salary

Student loan repayments are deducted automatically through PAYE (Pay As You Earn) alongside income tax and National Insurance. They're calculated on your gross salary before other deductions. For example, someone earning £40,000 gross with a Plan 2 loan: Student loan repayment: £1,143 per year (£95/month), Income tax: £5,486, National Insurance: £3,290, Total deductions including student loan: £9,919, Net salary: £30,081 per year, or £2,507 per month. The impact increases with higher salaries, as you pay 9% on a larger amount above the threshold.

Interest Rates and Loan Growth

Student loans accrue interest, which can cause loan balances to grow if repayments don't keep pace. Plan 2 loans: Interest rates vary based on income - lower earners pay RPI only, while higher earners pay up to RPI + 3%. Plan 5 loans: Interest is capped at RPI only, regardless of income. Understanding interest accrual helps you decide whether to make voluntary repayments or focus on other financial goals, as many graduates will never fully repay their loans before write-off.

Should You Make Extra Repayments?

For most graduates, making extra repayments is not financially optimal because: Many will have loans written off before full repayment, Interest rates are often lower than investment returns, Loans don't affect credit scores or mortgage applications, Repayments stop if income drops below threshold. However, extra repayments may make sense if: You're a very high earner who will definitely repay in full, You want the psychological benefit of being debt-free, Your interest rate significantly exceeds investment returns, or You're approaching the write-off period and close to paying off.

Using Our UK Calculator with Student Loans

Our UK salary calculator includes student loan options. Simply select your loan plan (Plan 1, Plan 2, or Plan 5), enter your gross salary, and our calculator will show you: Your monthly and annual student loan repayment, Total deductions including student loan, and Your final net salary after all deductions. This helps you understand the true impact of student loans on your take-home pay.

Disclaimer: Student loan thresholds and rates are adjusted annually. The information provided here is based on 2025 rates. Scotland and Northern Ireland have slightly different systems. Always check the official Student Loans Company (SLC) website or gov.uk for the most current thresholds and rates applicable to your specific loan plan.