Student debt: What you need to know about repaying your student loans

10 min Read Published: 05 May 2021

Student debt: What you need to know about repaying your student loansStudent debt and sky-high tuition fees are often seen as one of the younger generation's biggest financial obstacles.

With 2 in 5 students admitting that they do not fully understand how their student loans work, it is essential to make sure you grasp the basics of what student loans are, how much you can borrow, and how you repay them once you leave university to help you manage your money.

This article breaks everything you need to know about student loans in the UK down into straightforward, manageable chunks so that you can get to grips with managing your student loan debt and make those monthly repayments a bit less stressful.

What are the different kinds of student loan?

In the UK, there are two different kinds of loans from the government's Student Loans Company which higher education students are eligible for:

Tuition fee loan

This is an optional loan which you can borrow from the government in order to cover the cost of your tuition throughout your time in higher education.

Your university or college is responsible for setting the precise cost, but as of 2021, the standard tuition fee for an undergraduate student living in the UK is £9,250 per academic year. The loan is paid directly from the government to your university or college, so you do not have to worry about orchestrating the payments yourself.

Although you do not have to use this loan in order to pay for your tuition, the vast majority of UK students opt to. Between 2018 and 2019, 96% of eligible students chose to use a tuition fee loan to cover the cost of their education.

Maintenance loan

This is an optional loan which you can borrow from the government in order to cover the cost of day-to-day living throughout your time in higher education.

The government is responsible for setting the amount that you are entitled to, and this is calculated using some basic information about your financial circumstances, such as where you live and if you are financially independent from your parents or guardian. It is paid directly from the government into your personal bank account at the start of each academic term.

The maximum amount of maintenance loan that you can access is different depending on who you live with and where:

Circumstances 2020-2021 Academic Year 2021-2022 Academic Year
You are living at home (with parents or a guardian) Up to £7,747 Up to £7,987
You are living away from home, outside of London (without parents or a guardian) Up to £9,203 Up to £9,488
You are living away from home, inside of London (without parents or a guardian) Up to £12,010 Up to £12,382
You are spending one year of your course studying abroad (without parents or a guardian) Up to £10,539 Up to £10,866

Within each of these subsections, other details of your financial circumstances are also considered when calculating how much maintenance loan you will receive. Other factors include if the course you are attending is full or part-time, the annual income of each of your parents or guardian over the past tax year, and whether or not your parents or guardian support you financially,

Using a maintenance loan is also optional, but a large proportion of students prefer to utilise it in order to help them pay for renting accommodation, travel costs, and other regular expenditure. Between 2018 and 2019, more than 90% of eligible students chose to receive a maintenance loan.

When do I have to start repaying my student loan?

It is worth noting that your student loan debt is automatically cancelled after approximately 30 years, regardless of how much of it you have managed to pay off. There is no time limit on when you are expected to completely repay the loan.

You will only have to start paying back your student loan in monthly instalments once your pre-tax annual income is over the minimum threshold. For the 2021-2022 academic year, this threshold is £1,657 per week or £19,884 per year, before tax and other deductions.

If your income is below the minimum threshold, then you will not have to repay a single penny of your loan. You will only have to start repaying your loan as soon as your income surpasses the threshold.

If you stop receiving an income or your income falls below the minimum threshold at any point, your monthly repayments will stop.

If your income is above the minimum threshold, then the amount of your student loan that you have to repay in each instalment depends on which student loan plan you are on.

How do I know which student loan plan I'm on?

There are four different kinds of student loan plans which cover all UK higher education students, depending on which country students you were living in before you began your studies. Plans 1, 2 and 4 apply to undergraduate students, while the postgraduate loan (also known as plan 3) applies solely to students that have already completed at least one degree-level course in the past.

If you are an undergraduate student, this table will help you determine which loan plan you are on:

Where you were living before you started studying You started uni between 1st September 1998 and 30th August 2012 You started uni on or after 1st September 2012
England Plan 1 Plan 2
Wales Plan 1 Plan 2
Northern Ireland Plan 1 Plan 2
Scotland Plan 4 Plan 4

How much of my student loan do I have to repay each month?

Assuming your income is above the minimum threshold, the amount of your student loan you repay each month then depends on which loan plan you are on.

You repay:

  • 9% of the amount that you earn over the threshold for plans 1, 2 and 4
  • 6% of the amount that you earn over the threshold for the postgraduate loan

Your student loan repayments are also subject to interest, the rate of which is also different depending on your loan plan.

Plan 1 Plan 2 Plan 4 Postgraduate Loan (Plan 3)
Weekly pre-tax income threshold £382 £524 £480 £403
Monthly pre-tax income threshold £1,657 £2,274 £2,083 £1,750
How much you pay in each instalment 9% of what you earn over the threshold 9% of what you earn over the threshold 9% of what you earn over the threshold 6% of what you earn over the threshold
Interest rate 1.10% RPI (currently 2.6%) plus up to an additional 3% if your annual income is between £27,295-£49,130 1.10% RPI (currently 2.6%) plus an additional 3%

Example of repayment if you are on Plan 1:

  • Your annual income is £27,000 and you are paid a regular monthly wage.
  • This means that each month your income is £2,250 (£27,000 divided by 12).
  • This is over the Plan 1 monthly threshold of £1,657.
  • Your income is £593 over the threshold (£2,250 minus £1,657).
  • You will pay back £53 (9% of £593) each month.

Example of repayment if you are on Plan 2:

  • Your annual income is £28,800 and you are paid a regular monthly wage.
  • This means that each month your income is £2,400 (£28,800 divided by 12).
  • This is over the Plan 2 monthly threshold of £2,274.
  • Your income is £126 over the threshold (£2,400 minus £2,274).
  • You will pay back £11 (9% of £126) each month.

Example of repayment if you are on Plan 4:

  • Your annual income is £33,000 and you are paid a regular monthly wage.
  • This means that each month your income is £2,750 (£33,000 divided by 12).
  • This is over the Plan 4 monthly threshold of £2,083.
  • Your income is £667 over the threshold (£2,750 minus £2,083).
  • You will pay back £60 (9% of £667) each month.

Example of repayment if you are on the Postgraduate Loan plan:

  • Your annual income is £28,800 and you are paid a regular monthly wage.
  • This means that each month your income is £2,400 (£28,800 divided by 12).
  • This is over the Postgraduate Loan monthly threshold of £1,750.
  • Your income is £650 over the threshold (£2,400 minus £1,750).
  • You will pay back £39 (6% of £650) each month.

Further information for higher education students

For more advice on how to manage your finances as a student, check out our article "Student finance advice for those heading to university" or listen to Damien's podcast episode 191.

For an up-to-date insight on the best student bank accounts in 2021, read our article.