UK student loans are one of the most misunderstood financial products in the country. They look like debt but behave very differently from a bank loan — and for most graduates, the optimal strategy is counterintuitive.
The three student loan plans
| Plan | Who has it | Repayment threshold (2026) | Rate | Write-off |
|---|---|---|---|---|
| Plan 1 | Started before Sept 2012 (England/Wales) | £24,990/year | RPI or Bank Rate + 1% (lower) | Age 65 or 25 years |
| Plan 2 | Started Sept 2012 – July 2023 (England) | £27,295/year | RPI + 0-3% | 40 years |
| Plan 5 | Started Aug 2023+ (England) | £25,000/year | RPI + 0% | 40 years |
The key insight most people miss: it's not really debt
UK student loans are repaid at 9% of income above the threshold. You cannot be chased for the money, it doesn't affect your credit score, and whatever remains is written off after 30-40 years. For the majority of graduates who will never fully repay, it functions more like a graduate tax than a loan.
How repayments interact with your budget
Repayments are deducted automatically by your employer through PAYE, like tax. They're based on income, not loan size. If you earn £35,000 on Plan 2, you repay 9% of £7,705 (earnings above £27,295) = £693/year = £57.75/month. This is a fixed cost in your budget — like NI, it comes out before you see your pay.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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