Understanding current interest rates for all UK student loan plans, how they're calculated, and whether they actually matter for your repayments.
Student loan interest rates appear prominently in financial news, sparking anxiety among borrowers who watch their loan balances grow monthly. The reality, however, is more nuanced than headlines suggest. For most UK graduates, the interest rate on their student loan has minimal practical impact on their finances. This isn't because the rates are low—some reach 7.3%—but because of how UK student loans fundamentally work.
Unlike conventional loans where you pay a fixed amount monthly based on the balance and interest rate, UK student loan repayments are calculated as a percentage of income above a threshold. Whether your loan balance is £30,000 or £60,000, whether the interest rate is 1.75% or 7.3%, your monthly payment remains identical if your income is the same. The interest rate only determines how quickly the balance grows and whether you'll fully repay before the loan is written off after 30 years.
Government figures suggest 75-80% of recent graduates will never fully repay their loans before write-off. For these borrowers, higher interest rates are psychologically uncomfortable but financially irrelevant. The extra interest accrued each month increases a balance that will eventually be cancelled. It's like watching a debt grow that you know you'll never have to fully repay.
Interest rates do matter for higher earners likely to repay in full, those considering voluntary overpayments, and anyone trying to understand why their balance behaves unexpectedly. This guide breaks down current rates for every plan type, explains exactly how they're calculated, and helps you determine whether your loan's interest rate actually affects your financial situation or is just noise to ignore.
Interest rates vary significantly between loan plans, reflecting different policy approaches across England, Wales, Scotland, and Northern Ireland:
1.75%
Lower of Bank of England base rate + 1% or RPI
Applies to:
Variable: 4.3%-7.3%
RPI to RPI + 3% (income dependent)
1.75%
Lower of Bank of England base rate + 1% or RPI
Applies to: Scottish students who started September 2007 onwards
4.3%
RPI only (both during and after study)
Applies to: English students who started September 2023 onwards
7.3%
RPI + 3% throughout the entire loan
Applies to: Master's and doctoral loans in England and Wales
Note: Rates as of September 2023. RPI figure used: 4.3%. Interest rates are reviewed annually and adjust based on inflation measures.
Source: Student Loans Company
Use our Plan 2 Calculator, Plan 5 Calculator, or Postgraduate Loan Calculator to see how interest affects your specific loan balance over time.
UK student loan interest rates are primarily based on either the Retail Price Index (RPI) inflation measure, the Bank of England base rate, or a combination of both:
For Plan 1 and Plan 4 loans, the interest rate is set at the lower of:
This protective mechanism ensures that if inflation is high but the Bank of England base rate remains low, your interest rate stays relatively low, protecting borrowers during high inflation periods.
Plan 2 has the most complex interest structure, varying based on your study status and income:
RPI + 3% = 7.3% (with current RPI of 4.3%)
For incomes between thresholds, the formula is:
Rate = RPI + [(Income - £27,295) ÷ (£49,130 - £27,295)] × 3%
Example: Earning £35,000
This progressive structure means higher earners pay more interest, though the actual repayment amount still depends on income, not the loan balance or interest rate.
Plan 5 simplifies the interest calculation compared to Plan 2:
This makes Plan 5 interest rates more predictable and generally lower than Plan 2 for higher earners. A graduate earning £50,000 would pay 7.3% interest on Plan 2 but only 4.3% on Plan 5—a 3% difference.
Postgraduate loans have the simplest formula, but potentially the highest rate:
Unlike undergraduate Plan 2, postgraduate loans don't have income-based interest adjustments. Whether you earn £22,000 or £100,000, the interest rate remains constant at RPI + 3%.
Interest rates are reviewed annually and typically announced in late summer for the following academic/tax year. The RPI figure used is from the previous March. For example, the September 2023 rates use the March 2023 RPI of 4.3%.
A unique feature of UK student loans is that the interest rate often has less impact on your finances than you might expect:
Unlike conventional loans, your monthly repayments are calculated as a percentage of your income above the repayment threshold—not based on the size of your loan or the interest rate.
Scenario A:
Scenario B:
Despite doubling the loan balance and increasing the interest rate by 3%, the monthly payment is identical because repayments are calculated as: (£32,000 - £27,295) × 9% = £423.45.
Government figures suggest that around 75-80% of recent graduates with Plan 2 loans will never fully repay their loans before they're written off after 30 years. Similar projections exist for Plan 5 loans.
Graduate starts with £45,000 debt at 7.3% interest. Earns £30,000-£45,000 over career (average £37,500). After 30 years of repayments totaling approximately £28,000, the remaining balance of £85,000+ (grown due to interest) is written off. The 7.3% interest rate increased the written-off amount but didn't increase the total amount paid.
Interest becomes more important in these scenarios:
If you're earning £60,000+ and likely to clear your loan within 20 years, the interest rate significantly affects your total repayment. At 7.3% vs 4.3%, you might pay £5,000-£10,000 more in total.
If you're considering making extra payments, the interest rate affects whether this makes financial sense. With a 7.3% rate, overpaying might be worthwhile. With a 1.75% rate, investing that money elsewhere likely yields better returns.
Watching your loan balance grow each month can be psychologically distressing, even if it doesn't affect your monthly repayments or total amount you'll pay. Understanding that most of this growth will be written off can provide peace of mind.
"My loan balance is growing each month, so I'm falling behind and need to pay more."
This is false for most graduates. If you're earning below or near the threshold, your monthly repayments won't cover the interest, causing the balance to grow. This is completely normal and expected for 75-80% of borrowers. The system is designed this way. You're not "falling behind"—you're paying exactly what you should based on your income, and the excess will be written off.
Use our Investment vs Overpayment Calculator to see whether making voluntary repayments makes financial sense given your interest rate and expected earnings.
Interest rates on student loans have fluctuated significantly over time, primarily due to changes in inflation (RPI) and the Bank of England base rate:
Being linked to the lower of RPI or Bank Rate + 1%, these plans have seen relatively stable and low interest rates:
The protective "lower of" mechanism meant Plan 1 and 4 borrowers were shielded from the high inflation rates of 2022-2023, paying just 1.75% while RPI exceeded 11%.
Being primarily linked to RPI, Plan 2 has seen more volatility:
When inflation spiked to 11%+, the RPI + 3% formula would have resulted in interest rates exceeding 14%. The government intervened to cap rates at 7.3%, preventing extreme charges but still leaving Plan 2 borrowers with significantly higher rates than other plans.
Following the same RPI + 3% formula as Plan 2 while studying:
Postgraduate borrowers face the same high rates as Plan 2 higher earners but without the income-based adjustments. Even earning £22,000, you pay 7.3% interest.
Interest rates will continue to fluctuate with inflation and Bank of England policy. As inflation moderates from 2022-2023 peaks, rates are expected to gradually decrease, though they'll remain tied to economic conditions rather than being fixed.
Comparing interest rates across plans reveals significant policy differences:
| Loan Plan | Current Rate | Income-Based? | Inflation Protection? |
|---|---|---|---|
| Plan 1 | 1.75% | No | Yes (capped at BoE + 1%) |
| Plan 2 | 4.3%-7.3% | Yes (sliding scale) | Partial (capped at RPI + 3%) |
| Plan 4 | 1.75% | No | Yes (capped at BoE + 1%) |
| Plan 5 | 4.3% | No | No (tracks RPI) |
| Postgraduate | 7.3% | No | Partial (capped at RPI + 3%) |
Use our Plan 2 vs Plan 5 Comparison to see how interest rate differences affect your total repayment over time.
Only Plan 2 loans have income-dependent interest rates. Understanding this mechanism helps Plan 2 borrowers anticipate rate changes as their career progresses:
| Annual Income | Interest Rate Formula | Current Rate |
|---|---|---|
| Below £27,295 | RPI only | 4.3% |
| £27,295 | RPI + 0% | 4.3% |
| £30,000 | RPI + 0.37% | 4.67% |
| £35,000 | RPI + 1.06% | 5.36% |
| £40,000 | RPI + 1.75% | 6.05% |
| £45,000 | RPI + 2.43% | 6.73% |
| £49,130+ | RPI + 3% | 7.3% |
Age 22 (graduate): £25,000 salary → 4.3% interest
Age 25: £32,000 salary → 4.95% interest
Age 30: £42,000 salary → 6.32% interest
Age 35: £55,000 salary → 7.3% interest (maximum)
As your career progresses and salary increases, your interest rate automatically increases, even without any change in policy or inflation.
Promotion/raise: Interest rate increases immediately when new salary reported to HMRC
Job loss/reduction: Interest rate decreases to RPI only if income falls below threshold
Self-employment: Interest based on previous year's Self Assessment income
Maternity/paternity: Interest rate typically decreases due to reduced income
Interest rates are the primary factor in determining whether voluntary overpayments make financial sense:
Scenario: Plan 2 loan, £40,000 balance, earning £45,000 (6.73% interest rate), considering £5,000 overpayment
Verdict: If confident you'll fully repay, investing is slightly better. If uncertain, overpayment provides guaranteed return.
Use our Investment vs Overpayment Calculator to model your specific situation and make an informed decision.
Understanding your interest rate isn't about obsessing over every percentage point. It's about making informed decisions and avoiding unnecessary anxiety:
If watching your balance grow causes anxiety:
Your student loan interest rate is one factor among many in your financial life. Understanding it empowers you to make informed decisions, but for most graduates, obsessing over it is counterproductive. Focus on your career growth, earning potential, and overall financial health. The loan system is designed to be income-contingent, making the interest rate less important than it would be for conventional debt.
Use our student loan calculators for interest calculations, repayment projections, overpayment analysis, and write-off estimations.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.