Repaying your student loan – 5 things graduates need to know

This April, around 429,000 workers will start repaying their student loan for the first time since leaving university.  

Although the debt will be repaid automatically from your wages, repayment will only kick in if you earn enough to meet the earnings threshold. 

Here, Which? explains five things graduates need to know about paying back their student loan on Plan 2, including what interest you pay and how to claim a refund if you repay too much.

How to check which plan you're on

Before we begin, it's worth explaining the five different types of student loan plans available to students across England, Wales, Northern Ireland and Scotland. 

• Plan 1: You took out a loan in England and Wales between September 1998 and August 2012, or any time since September 1998 in Northern Ireland.
• Plan 2: You took out a loan in England between September 2012 and 2022, or you took out a loan in Wales after September 2012.
• Plan 4: This plan is exclusive to Scotland, and any Scottish students who started a degree in the UK after September 1998 have moved to Plan 4. 
• Plan 5: You took out a loan in England after September 2023. 
• Postgraduate loan (known as Plan 3 loans) For Masters students studying in England and Wales after September 2016.

1. You won't repay until you earn enough

Graduates will be eligible to pay back their student loan from April after their course finishes.  

Repayment only kicks in if you meet the earnings threshold, which is determined by which plan you’re on.

These repayments are paid through the PAYE tax system, meaning they are automatically deducted and sent to HMRC before you receive your salary.

Graduates on Plan 2 need to earn at least £27,295 before tax and deductions. You’ll then pay 9% of your income over the threshold.

Every plan has a different threshold; for example, those with a Postgraduate Loan only need to earn at least £21,000 before starting to repay, and will pay back 6% of their income over that threshold. 

• Find out more: student loans explained 

2. Interest is at its highest ever level

Usually, graduates who finished their course last year would expect to see the overall interest rate they're charged change from April, depending on how much they earn. 

While you’re studying, and until the April after you finish your course, the interest rate is usually RPI + 3%. This is set on 1 September each year and uses the Retail Price Index from the previous March. 

When you start working, the interest rate is usually as follows: 

• Under £27,295 per year: your interest will usually match RPI from the previous March
• Between £27,295 and £49,130: the extra interest rate you’ll need to pay above RPI gradually rises the more you earn, up to 3%.  So if you earn £38,213 (roughly half way between the two figures) you’ll be charged RPI plus 1.5%
• Over £49,130 per year: your interest will usually be RPI plus up to 3%.

However, due to soaring inflation in recent years, in July 2021 the government put a cap on the maximum interest charged for everyone on Plan 2, regardless of salary or working status. 

This currently stands at 7.8% and is reviewed monthly, and is up 0.9 of a percentage point from March 2023 when it was 6.9%. 

This 7.8% interest rate cap also applies to Plan 5 (students who joined university in 2023-24) and postgraduate Plan 3 loans.

To find out how interest is calculated for those on Plan 1 and Plan 4, check out our guide to repaying your student loan.

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3. Your loan will be wiped in 30 years

It's no surprise to learn that most graduates on Plan 2 will fail to pay off their loan in full. But the good news is that the loan will be wiped off in 30 years. 

The forecast average debt among Plan 2 students who started their course in 2022-23 is expected to be £45,600 on completion, according to a Parliamentary report. 

The government expects only 27% of these full-time undergraduates will repay their loan in full. This low figure was one of the reasons the government reformed the system, introducing a new Plan 5 for students starting university in 2023-24. 

Those on Plan 5 will only see their interest increase by RPI (as opposed to RPI plus 3%, and once the interest rate cap is lifted),  have a lower repayment threshold and their debt won't be wiped until after 40 years (rather than 30).

As a result, the government anticipates those starting university in 2023-24 on Plan 5 to have £42,900 of debt when they finish university, and around 61% of them would be able to pay back their loan in full.

Those on Plan 1 have their loans wiped after 25 years, and Plan 4 and postgraduate loan holders will have theirs wiped after 30 years. 

• Find out more: can debt stop you getting a mortgage?

4. You still need to pay if you move away

Contrary to some rumours, if you move abroad you still need to pay back your student loan.

If you move abroad for more than three months, you must update your employment details to let the Student Loans Company (SLC) know you have left the UK and you will have to continue to repay unless you can provide evidence your income is below the threshold. 

If you don’t update your details, your account may build up arrears and you’ll have to repay these even if your income is below the threshold for your repayment plan. These will be separate to your monthly repayments. 

The earnings thresholds for foreign countries are set each year and take account of differences in living costs from the UK. You can make repayments through your online account or by International Bank Transfer (IBAN).

If you don't give SLC the information it needs, you'll have to pay a fixed monthly amount. 

For Plan 2, the full list of rates can be found on the government website. 

• Find out more: best debit cards to use abroad

5. You can request refunds for overpayments

There are four scenarios where you may be owed a refund from the Student Loans Company:

• Over-repayment refunds: You paid off your loan but additional payments are taken.
• Below threshold refunds: The payments were taken correctly at the time, but over the whole year it may be that your annual income didn't exceed the yearly threshold overall.
• Wrong plan type: Your employer put you on the wrong plan type and you have a higher deduction than required.
• Early repayment refunds: You have repayments taken before you’re eligible to start (eg before the April after your course finished).

Those who are near to paying off their loan in full can avoid being overcharged by switching to direct debit payment in the last months. 

For other scenarios, you can complete a SLC refund form online to claim back the money. 

The total amount of overpayment refunds in 2022-23 was more than £23.4m, with nearly 58,000 people paying too much, according to the latest figures. Around £21.9m has been refunded, and the average refund is £406. 

• Find out more: student loan overpayments – are you owed a refund?