Understanding Student Loans in the UK

For many students in the UK, higher education would be financially out of reach without support from the government-backed student loan system. Designed to make university more accessible, student loans cover both tuition fees and living costs, with repayments structured to reflect graduates' ability to pay — not just what they owe.

Background

Since tuition fees were introduced in 1998, the student finance system in the UK has evolved significantly. In England, students can now borrow up to £9,250 per year for tuition, plus an additional amount for maintenance depending on where they live and their family income. These loans are provided by the Student Loans Company (SLC), a non-profit government organisation.

But the UK’s student finance model isn’t just about funding — it’s about enabling choice and widening access regardless of financial background.

Importantly, students don’t repay anything while studying, and repayment only begins once they’re earning above a certain salary threshold after graduation. This approach helps reduce financial anxiety during university years, and aligns repayment with future earnings.

The Repayment Model

Unlike traditional commercial loans, student loan repayments are based on income rather than the total borrowed. For most graduates with Plan 2 loans (typically those who started university after 2012 in England and Wales), repayments begin when income exceeds £27,295 per year. Above that threshold, 9% of the earnings are deducted automatically via PAYE (Pay As You Earn).

This means that if you never earn above the threshold, you may never repay a single penny.

From 2023 onwards, new students are being enrolled under Plan 5. While the repayment percentage and threshold are similar, the major change is the loan write-off period: it extends from 30 to 40 years. This means graduates will be repaying for longer — but, again, only if they earn enough to do so.

Interest and Write-Off

Student loans in the UK accrue interest, usually linked to inflation via the Retail Price Index (RPI), with additional percentages based on income. For some, this means their loan balance can grow even while they’re making repayments — especially in the early years post-graduation.

However, this interest is not like a traditional debt trap. After a set number of years (30 or 40 depending on the loan plan), any remaining balance is written off by the government. This protects lower earners and those who take career breaks, pursue further study, or move abroad.

The amount you repay depends more on what you earn than what you owe — and many graduates will never repay the full amount.

A Graduate Tax in Disguise?

For this reason, many experts argue that the UK student loan system functions more like a graduate tax. The repayments scale with income, don’t impact your credit score, and stop if your earnings drop — unlike typical loans that demand fixed monthly payments.

It’s also worth noting that student loans in the UK don’t appear on your credit report, and they aren’t considered when applying for most mortgages. The system is designed to be supportive, not punitive.

The real impact of your student loan is not the balance shown — it’s the percentage of your income you'll contribute, for a set number of years.