Published: June 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation.
UK student loans behave more like a graduate tax than a traditional commercial debt. Your monthly repayments are calculated as a fixed percentage of your income above a specific threshold, rather than being determined by the total amount of money you owe or the interest rate. If your salary falls below the designated threshold, your repayments automatically drop to zero, and the outstanding balance is written off entirely after a set number of years. In this comprehensive guide, we explain the differences between the five active UK student loan plans, detail the repayment thresholds and interest rates for the 2026/27 tax year, and analyze whether it makes financial sense to make voluntary early overpayments.
UK Student Loan Plans: Thresholds and Rates (2026/27)
Your student loan plan type is determined by when you started your course and where you lived before university. The table below displays the repayment thresholds and deductions for each plan in the 2026/27 tax year:
| Plan Type | Applicable Cohort | Repayment Threshold (Annual) | Repayment Rate |
|---|---|---|---|
| Plan 1 | Pre-2012 courses (UK-wide) or post-2012 Northern Ireland courses. | £24,910 | 9% of earnings above threshold |
| Plan 2 | Undergraduates in England and Wales who started between 2012 and 2023. | £27,295 | 9% of earnings above threshold |
| Plan 4 | Scottish students who started university after 1998. | £31,395 | 9% of earnings above threshold |
| Plan 5 | English undergraduates starting university courses from September 2023. | £25,000 | 9% of earnings above threshold |
| Postgraduate (PGL) | Master’s or Doctoral loans across the UK. | £21,000 | 6% of earnings above threshold |
To calculate exactly how much will be deducted from your monthly paycheck and run a long-term payoff forecast based on your projected salary growth, use our Student Loan Payoff Calculator.
How Repayments are Calculated
If you are on Plan 2 and earn £35,000 gross per year, your repayments are calculated only on the portion of your income above the £27,295 threshold. For example:
Taxable Margin = £35,000 - £27,295 = £7,705 per year
Annual Repayment = £7,705 × 9% = £693.45 per year (approximately £57.78 per month)
If you have both an undergraduate loan (e.g., Plan 2) and a Postgraduate loan, your repayments stack. You will pay 9% on earnings above the Plan 2 threshold and an additional 6% on earnings above the Postgraduate threshold (£21,000), resulting in a combined marginal student loan tax rate of 15% on your highest earnings.
Interest Rates and the “Write-Off” Rule
Interest rates on UK student loans are linked to inflation, specifically the Retail Price Index (RPI). For Plan 2, the interest rate varies from RPI (for low earners) up to RPI + 3% (for higher earners). For Plan 5, the interest rate is strictly capped at RPI, meaning the debt does not grow in real terms. However, because the debt is written off after a fixed duration, the interest rate only impacts people who are on track to fully repay their loan. For the majority of graduates, the loan behaves as a temporary lifetime tax:
- Plan 1 and Plan 4: Written off after 25 or 30 years depending on the exact year you started.
- Plan 2: Written off exactly 30 years after you became eligible to repay (the April after graduation).
- Plan 5: Written off after 40 years.
- Postgraduate Loan: Written off after 30 years.
Should You Pay Off Your Student Loan Early?
For most people, making voluntary overpayments to clear a UK student loan early is a poor financial decision. Because the outstanding debt is wiped clean after 30 or 40 years, any extra money you pay now is completely wasted if you would not have fully repaid the loan within that window anyway. Statistics show that only the top 15% of high earners are likely to fully repay their Plan 2 loans before they are written off. Therefore, unless you are highly confident that your career path will keep you in the highest tax bracket for the next three decades, you should treat your student loan as a marginal tax and focus your savings on higher-yielding options, such as purchasing a home or investing in a pension.
Frequently Asked Questions (FAQ)
Q: Are student loans deducted before or after tax?
A: Student loan repayments are calculated based on your gross income (before tax), but the money is deducted from your net pay (after tax and National Insurance have been taken out).
Q: What happens if my income drops or I lose my job?
A: Your repayments immediately stop. Because repayments are tied directly to your income, if your earnings fall below the threshold for your plan, no deductions will be made.
Q: Do I still pay student loans if I move abroad?
A: Yes. You must notify the Student Loans Company (SLC) when moving abroad. They will calculate a modified repayment threshold based on the cost of living in your destination country, and you must arrange to make payments directly.
Q: How does self-employment affect student loan repayments?
A: If you are self-employed, your student loan repayments are calculated on your Self Assessment tax return based on your annual business profits, and are paid together with your income tax by January 31st.
Q: Do student loans affect my mortgage applications?
A: The outstanding student loan debt amount does not affect your credit score or show up as a standard debt. However, because student loan repayments reduce your net monthly take-home pay, they are factored into affordability checks and can slightly lower the maximum amount a bank will lend you.