2025 Student Loan Interest Rate Updates: RPI Changes
Complete analysis of 2025 interest rate changes and monthly cost impact on your loan balance
Key Takeaways
- The March 2025 RPI figure is 3.2%, down from the 4.9% peak — this sets the base for all student loan interest rates from September 2025, giving borrowers some relief after two years of elevated charges
- Plan 2 interest ranges from 3.2% (RPI) to 6.2% (RPI + 3%) depending on your income — for 2025-26 you paid the maximum above £51,245 and only RPI at or below £28,470; from April 2026 those bands are £52,885 and £29,385
- For 2025-26, Plans 1, 4, and 5 all charge a flat rate with no income-based sliding scale — Plan 1 and Plan 4 use the lower of RPI or base rate + 1%, while Plan 5 charges RPI only (3.2%). From 1 September 2026 these rates rose to 4.1%, tracking the higher March 2026 RPI figure.
- On a £50,000 loan balance in 2025-26, 6.2% interest added approximately £3,100 per year (£258/month) to the debt — if repayments are less than this, the balance grows even while repaying. The current, capped rate since 1 September 2026 is 6.0%, adding about £3,000 per year on the same balance.
- Student loan interest accrues daily (not monthly or annually) — rates update each September based on the previous March RPI figure, so your rate changes once per year regardless of Bank of England base rate movements
In this article
Student loan interest rates for the 2025-26 academic year have been confirmed following the March 2025 Retail Price Index announcement. Interest rates directly affect how quickly your loan balance grows during study and repayment, with different plans using different calculation methods. Understanding the new rates for your specific loan plan is essential for projecting long-term costs and making informed decisions about voluntary overpayments or accepting eventual write-off.
The Office for National Statistics published March 2025 RPI at 3.2%, down from a previous-year peak of 4.9%, reflecting moderating inflation as economic conditions stabilize. This RPI figure forms the base rate for most student loan interest calculations with additional percentages added depending on your loan plan and income level during repayment. Lower RPI compared to recent years provides some relief to borrowers though rates remain historically elevated compared to pre-2022 levels.
This guide provides complete analysis of 2025-26 interest rates including exact rates for all active loan plans, RPI methodology and implications for different borrower circumstances, monthly and annual interest cost calculations at typical loan balances, comparison to previous years showing rate trajectory, and future outlook considering economic forecasts. Whether currently studying or years into repayment, these rate changes affect your loan balance growth and ultimate lifetime costs.
This page describes the 2025-26 academic year specifically. The rates below, including the 3.2% RPI-linked figures and the 6.2% Plan 2 and Postgraduate maximum, were correct for that year only. From 1 September 2026, the RPI base rose to 4.1% (March 2026 figure), taking Plan 1, Plan 4 and Plan 5 to 4.1% and the uncapped Plan 2/Postgraduate formula to 7.1% — held at the 6.0% cap that has applied since the same date. See our 2026-27 academic year changes page for today's rates.
2025 Interest Rate Overview
Interest rates apply differently during study versus repayment periods and vary significantly by loan plan. March 2025 RPI of 3.2% determines base rates effective from September 2025 for the new academic year.
Summary of 2025-26 Rates
| Loan Plan | While Studying | During Repayment | Change from 24-25 |
|---|---|---|---|
| Plan 1 | 3.2% (RPI) | 3.2% (RPI) | -1.1% |
| Plan 2 | 6.2% (RPI+3%) | 3.2-6.2% | -1.1% |
| Plan 4 | 3.2% (RPI) | 3.2% (RPI) | -1.1% |
| Plan 5 | 3.2% (RPI) | 3.2% (RPI) | -1.1% |
| Postgraduate | 6.2% (RPI+3%) | 6.2% (RPI+3%) | -1.1% |
Key Observations
All loan plans see interest rate decreases of 1.1 percentage points reflecting lower March 2025 RPI compared to the previous year. This is the third consecutive year of declining rates after peaks in 2022-23 when RPI reached 12% creating interest rates as high as 15% for some borrowers. Current rates remain elevated compared to pre-pandemic averages but represent significant moderation from recent extremes.
Plan 2 borrowers during repayment pay progressive rates from RPI only at lower incomes up to RPI + 3% at higher incomes. Someone earning under £28,470 pays just 3.2% while someone earning over £51,245 pays a maximum of 6.2%. This creates substantial interest cost differences based on income level with higher earners facing much faster balance growth.
Plan 5 borrowers benefit from RPI-only interest at all income levels, a key distinction from Plan 2. On a £50,000 balance, a Plan 5 borrower pays £1,600 annual interest while a Plan 2 high earner at the same balance pays £3,100, nearly double. This lower interest partially offsets Plan 5's lower threshold and longer write-off period.
Postgraduate Loan Rates
Postgraduate loans consistently charge RPI + 3% at all times regardless of income, currently 6.2% for 2025-26. This is the highest rate among all plans and applies equally during study and repayment. Someone with a £13,000 postgraduate loan accumulates approximately £806 annual interest, or £67 monthly. Over a typical Master's year, interest adds roughly £535 to the balance before the first salary is earned. For combined loan impact, see our multiple degrees guide.
RPI Implications
Understanding RPI methodology and how it affects student loan interest helps predict future rate movements and plan accordingly.
What Is RPI and Why It Matters
Retail Price Index measures inflation based on basket of goods and services purchased by typical households. ONS calculates RPI monthly comparing current prices to previous year. March RPI figure specifically determines student loan interest rates for upcoming academic year beginning September. Government chose RPI rather than alternative measures like CPI because RPI typically runs higher, generating more interest revenue from loan portfolio.
March 2025 RPI of 3.2% means prices increased 3.2% over 12 months from March 2024 to March 2025. This moderation from 4.9% the previous year reflects easing inflation pressures as energy costs stabilize and supply chain disruptions resolve. However, RPI remains above the Bank of England's 2% target and pre-pandemic historical averages around 2% to 3%, meaning interest rates remain elevated in historical context.
RPI Versus CPI
Consumer Price Index typically runs lower than RPI due to different calculation methodologies and housing cost treatment. March 2025 CPI was 1.9% while RPI was 3.2%, a difference of 1.3 percentage points. If student loans used CPI instead of RPI, current interest rates would be approximately 1.3 percentage points lower across all plans, saving a typical borrower several hundred pounds annually.
Government considered switching from RPI to CPI in 2022 consultation but ultimately maintained RPI after analysis showed this would reduce long-term loan repayment revenues by billions. Borrowers advocated strongly for CPI switch as fairer measure but government prioritized fiscal considerations. Future government may revisit this decision though political willingness to reduce student loan collections appears limited.
Daily Interest Accrual
Student loan interest accrues daily based on outstanding balance multiplied by annual rate divided by 365. On a £50,000 balance at 6.2% (the 2025-26 Plan 2/Postgraduate maximum), daily interest is £8.49. This compounds continuously meaning you pay interest on accumulated interest in subsequent periods. Over one year, £50,000 grows to £53,198 through daily compounding at a 6.2% annual rate, demonstrating the powerful effect of compound interest on student loan balances.
Rates by Loan Plan
Detailed breakdown of how interest rates apply to different loan plans during study and repayment phases.
Plan 2 Progressive Interest Structure
Plan 2 uses a complex progressive interest structure during repayment. Borrowers earning at or below the threshold of £28,470 pay RPI only, at 3.2%. Interest increases progressively for income between the threshold and £51,245 on a sliding scale. Someone earning £40,000 pays approximately RPI + 1.5%, totalling 4.7%. Those earning £51,245 or more pay the maximum RPI + 3%, at 6.2%.
Plan 2 Interest by Income (2025-26):
£28,470 or below → 3.2% (RPI only)
£35,000 → 4.1% (RPI + 0.86%)
£40,000 → 4.7% (RPI + 1.52%)
£45,000 → 5.4% (RPI + 2.18%)
£51,245+ → 6.2% (RPI + 3%)
Plan 5 Simplified RPI-Only
Plan 5 charges RPI only at all income levels, eliminating the progressive structure. Every Plan 5 borrower pays exactly 3.2% in 2025-26 whether earning £26,000 or £100,000. This simplification represents a major benefit for higher earners who under Plan 2 would pay 6.2%. Someone with a £60,000 balance earning £60,000 saves £1,800 annually in interest compared to the Plan 2 equivalent.
Government introduced RPI-only interest for Plan 5 to offset other less favorable terms including a lower threshold at £25,000 versus £28,470 and a longer 40-year write-off versus 30 years. Analysis suggests most Plan 5 borrowers still repay more over their lifetime due to these other factors despite lower interest, but high earners definitely benefit from the RPI-only structure avoiding punitive high-income interest rates.
Interest During Study
Students currently studying pay interest from the day loans are disbursed despite earning no income. Plan 2 and postgraduate students pay RPI + 3% at 6.2% throughout study. A three-year undergraduate borrowing £57,000 accumulates approximately £10,150 interest during study before the first salary, graduating with £67,150 total debt.
Plan 5 students pay RPI only at 3.2% during study, substantially lower than Plan 2. The same three-year course with £57,000 borrowing accumulates approximately £5,370 interest, graduating with £62,370 total debt. This £4,780 difference in starting post-graduation balance represents a major Plan 5 advantage partially offsetting the lower threshold and longer write-off.
Monthly Interest Cost Impact
Understanding monthly interest costs helps evaluate whether your repayments exceed interest accumulation and whether overpayments make financial sense.
Monthly Interest Examples
Plan 2 Low Earner (£35k salary, £50k balance, 3.2% rate):
Monthly interest: £133.33
Monthly repayment: £48.98
Balance grows £84.35 monthly despite payments
Plan 2 High Earner (£60k salary, £50k balance, 6.2% rate):
Monthly interest: £258.33
Monthly repayment: £236.48
Balance grows £21.85 monthly despite high payments
Plan 5 High Earner (£60k salary, £50k balance, 3.2% rate):
Monthly interest: £133.33
Monthly repayment: £262.50
Balance decreases £129.17 monthly, will eventually repay
When Repayments Exceed Interest
Plan 2 borrowers need approximately £65,000 annual salary before monthly repayments exceed interest accumulation on a typical £50,000 balance at the maximum rate. Below this threshold, balance grows despite repayments due to interest outpacing payments. This explains why most Plan 2 borrowers never fully repay, reaching write-off with a substantial balance remaining to be forgiven.
Plan 5 borrowers reach the repayment-exceeds-interest point around £45,000 due to lower RPI-only interest. This means a larger proportion of Plan 5 borrowers will eventually clear balances before the 40-year write-off, which is intentional government policy design. For overpayment analysis, use our overpayment calculator.
Future Rate Outlook
Projecting future interest rates helps with long-term planning though exact rates depend on inflation trajectory which is inherently uncertain.
Expected Rate Trajectory
At the time of the March 2025 RPI announcement, Bank of England forecasts suggested RPI would continue moderating toward the 3% range over the following two years as inflation pressures eased. That implied student loan rates around 3% for RPI-only plans and up to 6% for plans adding a 3 percentage point margin. In practice, a 6.0% cap on Plan 2 and Postgraduate interest took effect from 1 September 2026, which now sets a firm ceiling regardless of how RPI moves.
Inflation forecasting is notoriously difficult, with external shocks like energy crises or geopolitical events able to reverse progress quickly. For RPI-only plans (1, 4 and 5) that have no cap, rates could still rise if RPI spikes again. Building tolerance for rate volatility into long-term projections prevents being caught off-guard by future increases. For the latest rates, see our 2026-27 academic year changes page.
2025-26 interest rate decreases provided moderate relief from recent peaks
Across all loan plans, interest rates declined by approximately 1.1 percentage points for 2025-26 reflecting lower RPI inflation. This reduced monthly interest accumulation by tens of pounds for typical balances, making loan management more affordable. Rates remained elevated compared to pre-pandemic norms and most borrowers still saw balances grow despite repayments due to interest exceeding payments at moderate income levels. Since 1 September 2026, the RPI base used for these calculations rose to 4.1% (from the 3.2% this page describes for 2025-26), and a 6.0% cap keeps the Plan 2 and Postgraduate maximum below the 7.1% that RPI would otherwise produce. Understanding your specific rate and monthly interest cost helps evaluate overpayment decisions and long-term planning.
For more updates, see our guides on threshold changes and Budget 2025 announcements.
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.