How student loan interest works (and why your balance can grow)
Student loan interest confuses almost everyone, partly because it’s tied to inflation rather than to anything you control, and partly because your repayments aren’t linked to it at all.
Interest and repayments are separate things
Your repayment is set by your income: a fixed share of what you earn above your plan’s threshold. Interest is set by your plan and by inflation figures. The two don’t interact. Interest is added to your balance every month, from the day your first payment is made, until the loan is repaid, written off or cancelled. It’s added whether or not you’re working and even if your income is below the threshold.
If a year’s interest is more than a year’s repayments, the balance goes up even though you paid every month. On a modest salary that’s normal, not a mistake. It also explains why the write-off date matters so much: a balance that keeps growing can still be cancelled at the end. See when does my student loan get written off?
Where the rate comes from
Rates are based on the Retail Price Index (RPI), a measure of inflation. They’re usually set on 1 September each year using the previous March’s RPI, and can change during the year too. The Student Loans Company doesn’t set them: the UK government does, and the Department for Education confirms them.
The rates this site uses for 2026–27, effective from 1 September 2026, are:
- Plan 1: 4.1%
- Plan 2: between 4.1% and 6%, depending on income (explained below)
- Plan 4 (Scotland): 4.1%
- Plan 5: 4.1%
- Postgraduate Loan: 6%
For how each plan’s rate is built, see student loan interest rates by plan.
Plan 2’s income-based rate
Plan 2 is the odd one out. After you leave your course, its interest rate depends on your income:
- At or below the Plan 2 threshold (£29,385): RPI only, which is 4.1% at the rate used here.
- At or above roughly £52,884: RPI plus 3%.
- In between: RPI plus a share of that 3%, in proportion to how far your income sits between the two thresholds.
Some worked figures at the rates used here:
| Annual income | Plan 2 interest rate |
|---|---|
| £30,000 | 4.18% |
| £35,000 | 4.82% |
| £40,000 | 5.46% |
| £45,000 | 6% |
| £55,000 | 6% |
GOV.UK says there is currently a cap on Plan 2 interest (6% at the time of writing, running until 31 August 2027), which is why the higher incomes stop at 6% instead of continuing to RPI plus 3%. While you’re studying, Plan 2 borrowers are usually charged RPI plus 3% (also subject to the cap).
Two details make this less exact in practice:
- If you’re employed, the Student Loans Company charges the RPI-only rate during the tax year, because it doesn’t know your annual income yet. It gets your income from HMRC after the tax year ends, then checks the interest charged and adjusts your balance if needed.
- If you’re unemployed or your income isn’t known, it uses RPI only until it does know.
The practical effect is that higher earners on Plan 2 pay a higher rate, which changes the maths of overpaying. See should I overpay Plan 2?
Why the rate matters less than you’d think, and more
Whether the interest rate matters to you depends on one thing: will you repay the loan in full before it’s written off?
- If you won’t, the interest is largely theoretical. It grows a balance that will be cancelled, and what you actually pay is set by your income.
- If you will, the interest is a real cost, and the rate decides how much extra you’ll pay in total. Only then does it make sense to compare the rate with what you could earn by investing instead.
That’s why the calculator asks for your income and your start year, not just the rate. The rate on its own doesn’t answer the question.
Where to check your own figures
Your balance and current rate are on your Student Loans Company online account, and your annual statement, normally available by the end of August, shows how interest has been applied. Rates change, so check GOV.UK for the current ones before making a decision that depends on them.
Sources: GOV.UK, Plan 2 interest and Repaying your student loan.