Skip to main content
Student Loan Calculator UK - home
Calculators

UK Student Loan Interest Rates: Complete Guide

From 1 September 2026, Plan 1 and 4 interest is the lower of RPI or base rate plus 1%, Plan 5 is RPI only, and Plan 2 and Postgraduate run from RPI to RPI plus 3%, capped at 6%.

Plan 1 and 4
4.1%
Plan 5
4.1%
Plan 2 cap
6%

Source: GOV.UK, Student Loans Interest Rates and Repayment Threshold Announcement (opens in a new tab)

Understanding current interest rates for all UK student loan plans, how they're calculated, and whether they actually matter for your repayments.

Key Takeaways

  • •Plan 1 & 4: the lower of RPI or Bank of England base rate + 1% (4.1%); Plan 5: RPI only (4.1%); Plan 2 and the Postgraduate Loan: RPI to RPI + 3%, capped at 6%.
  • •Interest accrues daily from the day your first loan payment hits your account — even while you’re still studying.
  • •Plan 2 interest scales with income: earners at or below £29,385 pay RPI (4.1%); earners at £52,885 or more pay the capped 6%.
  • •Most borrowers never repay in full, so interest matters less than write–off date — focus on monthly deductions, not total balance.
  • •The 6% cap on Plan 2 and Postgraduate loans has been in force since 1 September 2026; rates are reset every September from the previous March’s RPI (4.1%).

Advertisement

Summarize this page with:

Share this page to:

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 6%, 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 4.1% or 6%, 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. Our student loan calculator UK shows how interest impacts your specific balance over time, and the student loan interest calculator breaks out how much of that growth is interest alone.

Student loan interest rates 2026/27 by plan

UK student loan interest rates for 2026/27 are 4.1% on Plan 1, 4.1% to 6% on Plan 2, 4.1% on Plan 4, 4.1% on Plan 5 and 6% on the Postgraduate Loan. Every rate is derived from RPI of 4.1% measured in March 2026 and applies from 1 September 2026 to 31 August 2027. Plan 2 and Postgraduate rates are held below their 7.1% and 7.1% formula results by the 6% cap.

UK student loan interest rates by plan, 2026/27
PlanInterest rate 2026/27How the rate is setWho is on it
Plan 14.1%Lower of RPI or Bank of England base rate + 1%England/Wales starters before Sept 2012, and all Northern Ireland borrowers
Plan 24.1% to 6%RPI to RPI + 3% by income (4.1% to 7.1% uncapped), capped at 6%England starters Sept 2012 to Jul 2023, and Wales starters from Sept 2012
Plan 44.1%Lower of RPI or Bank of England base rate + 1%Scotland-domiciled borrowers (SAAS)
Plan 54.1%RPI only, for the whole life of the loanEngland starters from 1 August 2023
Postgraduate Loan (Plan 3)6%RPI + 3% (7.1% uncapped), capped at 6%Master's and doctoral borrowers in England and Wales

Not sure which row applies to you? Work it out with our guide to what student loan plan am I on, then check the income level at which deductions start in the student loan repayment threshold guide.

Plan 1 student loan interest rate

4.1%

Lower of Bank of England base rate + 1% or RPI

Applies to:

  • English/Welsh students who started before September 2012
  • All Northern Irish borrowers, whatever year they started

Plan 2 student loan interest rate

4.1% to 6%

RPI to RPI + 3% (income dependent)

  • • While studying: 6% (RPI + 3%, capped)
  • • After graduation, earning £29,385 or less: 4.1% (RPI only)
  • • Earning £29,386 to £52,884: 4.1%–6% (sliding scale)
  • • Earning £52,885 or more: 6% (RPI + 3%, capped)
  • • Cap has applied since 1 September 2026

Plan 4 student loan interest rate

4.1%

Lower of Bank of England base rate + 1% or RPI

Applies to: Scottish students who started September 2007 onwards

Plan 5 student loan interest rate

4.1%

RPI only (both during and after study)

Applies to: English students on courses starting 1 August 2023 onwards

Postgraduate Loan interest rate

6%

RPI + 3% throughout the entire loan

Applies to: Master's and doctoral loans in England and Wales

Note: Rates in force from 1 September 2026 to 31 August 2027. RPI figure used: 4.1% (March 2026). Interest rates are reviewed annually and adjust based on inflation measures. A 6% cap has applied to Plan 2 and Plan 3 (Postgraduate) loans since 1 September 2026.

Source: Student Loans Company

Use our monthly repayment calculator or Postgraduate Loan Calculator to see how interest affects your specific loan balance over time.

Advertisement

How is student loan interest calculated in the UK?

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:

Plan 1 and Plan 4 Interest Formula

For Plan 1 and Plan 4 loans, the interest rate is set at the lower of:

  • The RPI inflation rate (measured in the previous March)
  • The Bank of England base rate plus 1%

Example calculation (rates from 1 September 2026):

  • RPI (March 2026): 4.1%
  • Bank of England base rate plus 1%: higher than 4.1% throughout this period
  • Interest rate applied: 4.1% (the lower of the two)

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 Interest Formula

Plan 2 has the most complex interest structure, varying based on your study status and income:

While studying:

RPI + 3%, capped at 6% (with current RPI of 4.1%)

After graduation:

  • Earning £29,385 or less: RPI only = 4.1%
  • Earning £29,386 to £52,884: Interest increases on a sliding scale from RPI to RPI + 3%
  • Earning £52,885 or more: RPI + 3%, capped at 6%

Sliding scale calculation:

For incomes between thresholds, the formula is:

Rate = RPI + [(Income - £29,385) ÷ (£52,885 - £29,385)] × 3%

Example: Earning £35,000

  • Above threshold: £35,000 - £29,385 = £5,615
  • Range: £52,885 - £29,385 = £23,500
  • Proportion: £5,615 ÷ £23,500 = 0.239
  • Additional rate: 0.239 × 3% = 0.72%
  • Total rate: 4.1% + 0.72% = 4.82%

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 Interest Formula

Plan 5 simplifies the interest calculation compared to Plan 2:

  • Interest is set at RPI only, both during and after your studies
  • Unlike Plan 2, there's no additional percentage added based on income
  • Current rate: 4.1% (matching the RPI rate)

This makes Plan 5 interest rates more predictable and generally lower than Plan 2 for higher earners. A graduate earning £50,000 would pay the capped 6% on Plan 2 (the sliding-scale formula would otherwise give 6.73%) but only 4.1% on Plan 5, a gap of roughly 1.9 percentage points.

Postgraduate Loan Interest Formula

Postgraduate loans have the simplest formula, but potentially the highest rate:

  • Interest is set at RPI + 3% throughout the entire life of the loan
  • This rate applies regardless of income or study status
  • Current rate: 6% (capped since 1 September 2026)

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%.

When are interest rates set?

Interest rates are reviewed annually and typically announced in late summer for the following academic year. The RPI figure used is from the previous March. For example, the rates in force from 1 September 2026 to 31 August 2027 use the March 2026 RPI of 4.1%, up from the 3.2% RPI figure used the year before.

Does the student loan interest rate actually matter?

A unique feature of UK student loans is that the interest rate often has less impact on your finances than you might expect:

Repayments Are Based on Income, Not Balance

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.

Example (Plan 2):

Scenario A:

  • Loan balance: £30,000
  • Interest rate: 4.1%
  • Annual salary: £32,000
  • Annual repayment: £235.35

Scenario B:

  • Loan balance: £60,000
  • Interest rate: 6% (capped)
  • Annual salary: £32,000
  • Annual repayment: £235.35

Despite doubling the loan balance and increasing the interest rate by nearly 2 percentage points, the monthly payment is identical because repayments are calculated as: (£32,000 - £29,385) × 9% = £235.35.

Most Loans Are Never Fully Repaid

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.

What this means:

  • The interest rate has little practical impact on your finances if your loan will be written off
  • A larger balance due to higher interest doesn't matter if the loan will be cancelled anyway
  • You're effectively paying a 9% "graduate tax" on earnings above the threshold, not repaying a traditional loan

Example: Average earner

Graduate starts with £45,000 debt at 6% interest. Earns £30,000-£45,000 over career (average £37,500). After 30 years of repayments totalling roughly £22,000, a large remaining balance grown by interest is written off. The interest rate increased the written-off amount but didn't increase the total amount paid.

When Interest Rates Do Matter

Interest becomes more important in these scenarios:

Higher earners likely to repay in full:

If you're earning £60,000+ and likely to clear your loan within 20 years, the interest rate significantly affects your total repayment. At 6% against 4.1%, you might pay £3,500-£7,000 more in total.

Voluntary repayments:

If you're considering making extra payments, the interest rate affects whether this makes financial sense. With a 6% rate, overpaying might be worthwhile. With a 4.1% rate, investing that money elsewhere likely yields better returns.

Psychological impact:

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.

Common misconception:

"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.

Historical UK student loan interest rates

Interest rates on student loans have fluctuated significantly over time, primarily due to changes in inflation (RPI) and the Bank of England base rate:

Plan 1 and Plan 4 Historical Rates

Being linked to the lower of RPI or Bank Rate + 1%, these plans have seen relatively stable and low interest rates:

  • 2016-2020: Generally between 1.1% and 1.75%
  • 2020-2022: Dropped to just 0.1% due to historically low Bank of England rates during COVID-19
  • 2022-2023: Increased to current rate of 1.75% as Bank Rate rose to combat inflation

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%.

Plan 2 Historical Rates

Being primarily linked to RPI, Plan 2 has seen more volatility:

  • 2012-2016: Generally between 3.3% and 5.5% for studying/higher earners
  • 2017-2022: Increased to a peak of RPI + 3% = 6.3% for higher earners
  • 2022-2023: Reached a maximum of 7.3% (RPI + 3%) for higher earners as inflation surged
  • 2023: Rate capped at 7.3% despite RPI exceeding 11% (due to government intervention)

2022-2023 crisis:

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.

Postgraduate Loan Historical Rates

Following the same RPI + 3% formula as Plan 2 while studying:

  • 2016-2021: Generally between 4% and 5.6%
  • 2022-2023: Peaked at 7.3%

Postgraduate borrowers face the same high rates as Plan 2 higher earners but without the income-based adjustments. Even earning £22,000, you paid the full RPI + 3% rate.

Future outlook:

Interest rates will continue to fluctuate with inflation and Bank of England policy. Rates have fallen a long way from the 2022-2023 peaks, though the March 2026 RPI of 4.1% (setting the rates in force from 1 September 2026 to 31 August 2027) is up from the 3.2% figure used the year before. A 6% cap on Plan 2 and Plan 3 loans has been in force since 1 September 2026.

Student loan interest rates compared: Plan 1, 2, 4, 5 and Postgraduate

Comparing interest rates across plans reveals significant policy differences:

Loan PlanCurrent RateIncome-Based?Inflation Protection?
Plan 14.1%NoYes (capped at BoE + 1%)
Plan 24.1% to 6%Yes (sliding scale)Partial (capped at RPI + 3%)
Plan 44.1%NoYes (capped at BoE + 1%)
Plan 54.1%NoNo (tracks RPI)
Postgraduate6%NoPartial (capped at RPI + 3%)

Best interest rates (currently):

  1. Plan 1 / Plan 4 / Plan 5: 4.1% (most favourable)
  2. Plan 2 (low earners): 4.1%
  3. Plan 2 (high earners): 6% (capped)
  4. Postgraduate (Plan 3): 6% (capped, least favourable)

Most predictable rates:

  1. Plan 5: Simple RPI formula
  2. Postgraduate: Simple RPI + 3%
  3. Plan 1 / Plan 4: Lower-of mechanism adds complexity
  4. Plan 2: Sliding scale based on income (most complex)

Use our Plan 2 vs Plan 5 Comparison to see how interest rate differences affect your total repayment over time.

Plan 2 student loan interest rate by income

Only Plan 2 loans have income-dependent interest rates. Understanding this mechanism helps Plan 2 borrowers anticipate rate changes as their career progresses:

Plan 2 Income Bands and Interest Rates

Annual IncomeInterest Rate FormulaCurrent Rate
£29,385 or lessRPI + 0%4.1%
£30,000RPI + 0.08%4.18%
£35,000RPI + 0.72%4.82%
£40,000RPI + 1.36%5.46%
£45,000RPI + 1.99%6% (capped; formula gives 6.09%)
£52,885 or moreRPI + 3%6% (capped; formula gives 7.1%)

Career progression example:

Age 22 (graduate): £25,000 salary → 4.1% interest

Age 25: £32,000 salary → 4.43% interest

Age 30: £42,000 salary → 5.71% interest

Age 35: £55,000 salary → 6% interest (maximum, capped)

As your career progresses and salary increases, your interest rate automatically increases, even without any change in policy or inflation.

Common scenarios:

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

Should You Make Voluntary Overpayments?

Interest rates are the primary factor in determining whether voluntary overpayments make financial sense:

When overpayments likely make sense:

  • High interest rate (6%+): Paying down a 6% loan is equivalent to a guaranteed 6% return on investment
  • High income: Earning £50,000+ and likely to fully repay within 20 years
  • Rapid career growth: Salary increasing quickly, loan will be repaid soon anyway
  • Large windfall: Received inheritance, bonus, or other one-time payment

When overpayments likely DON'T make sense:

  • Low interest rate (below 4.5%): You can likely earn more by investing elsewhere
  • Average income: Loan will likely be written off, so overpayments just increase the amount written off
  • Uncertain career: Might have periods of low income or unemployment
  • Other debts: Credit cards, personal loans, or mortgage at higher rates should be prioritized

Break-even analysis example:

Scenario: Plan 2 loan, £40,000 balance, earning £45,000 (6% interest rate, capped; the sliding-scale formula would otherwise give 6.09%), considering £5,000 overpayment

Option A: Make £5,000 overpayment

  • Saves ~£3,200 in interest over loan life
  • Clears loan ~2 years earlier
  • Effective return: 6% guaranteed (capped)

Option B: Invest £5,000

  • Assuming 7% average annual return
  • After 15 years: ~£13,795
  • Better outcome IF you actually fully repay the loan

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.

Taking Control of Your Student Loan Interest

Understanding your interest rate isn't about obsessing over every percentage point. It's about making informed decisions and avoiding unnecessary anxiety:

Annual interest rate check:

  • Check current rate for your plan each September when rates are announced
  • Calculate annual interest you'll accrue: (Balance × Rate)
  • Compare to annual repayments: (Income - Threshold) × 9%
  • Determine if balance will grow, shrink, or stay stable

Decision points requiring interest rate consideration:

  • Career change: Will reduced income affect interest rate (Plan 2 only)?
  • Windfall: Should you use it for overpayment or investment?
  • Job offer negotiation: How will salary increase affect interest rate and total repayment?
  • Emigration: Different rules apply; might want to clear loan before leaving

Mental health approach to interest rates:

If watching your balance grow causes anxiety:

  • Remember: 75-80% of borrowers never fully repay. Balance growth is normal and expected.
  • Focus on your monthly repayment (9% of income above threshold), not the balance
  • Calculate your likely write-off amount to see the psychological "debt" that doesn't matter
  • Consider not checking your balance more than once per year
  • Reframe as a "graduate tax" rather than traditional debt

Resources and tools:

  • Check Student Loans Company website for official rate announcements
  • Use student loan calculators to model different scenarios
  • Consider speaking with a financial advisor if contemplating large overpayments
  • Monitor government policy changes that might affect rates or thresholds

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.

Understand your interest rate. Model your scenarios. Make informed decisions. But don't let interest rate anxiety control your finances when, for most graduates, it has minimal practical impact on total lifetime repayments.

Use our student loan calculators for interest calculations, repayment projections, overpayment analysis, and write-off estimations.

🎓

Student Loan Calculator UK Editorial Team

Editorial Team

This page is maintained by the Student Loan Calculator UK editorial team, checked against GOV.UK and Student Loans Company guidance. Read more about our editorial approach.

Next step

Advertisement