Plan 5 English student finance: Five need-to-knows

Think about whether university is right for you

You don’t need to pay upfront to go to university, yet take the time to think it through. Many university leavers have their student loan hanging over them for the majority of their working life.

The cost of going to university can be high, so you should seriously consider whether it's really right for you. And if it is, as it will be for some, whether the institution you're selecting and the course you're picking are right or not.

University can be, and often is, life enhancing – and can lead to increased earnings potential. But other options, such as apprenticeships, or getting into the workplace quicker and learning on the job, may be better for some and should be explored too.

This guide covers five need-to-knows, including a How much will I pay? AI prompt. Plan 5 loans are for first-time undergraduate English residents, who started in or after 2023, and future students too. The figures do change slightly each year, and this guide is based on the current academic year. Those from elsewhere in the UK or on earlier plans can go to What student loan plan am I on? to find the specific info for you.

1. The student loan price tag can be £60,000, but that's not what you pay

• You should only start repaying in the April after you leave or finish your course. So if you finish in summer 2028, that's likely to be April 2029, nine months after you leave (if you withdraw from the course earlier, you'd start repaying in the first relevant April afterwards).

• You repay 9% of everything earned above the (currently £25,000) threshold. Earn less and you don’t pay, and the more you earn, the more you repay each month. The repayment threshold is supposed to rise with RPI inflation from 2027.
  
  As most people are paid monthly, technically you pay 9% above the equivalent £2,083/month (or £480/week). So if you have an irregular payment, for example a bonus (of say £1,000), you have to pay more (in this case £90) that month. If your total annual earnings are under £25,000 you may be able to reclaim this, but sadly if they're more you can't reclaim any of it.
  
  That means the more you earn, the more you repay each month...

• The loan is automatically WIPED after 40 years (or if you die). Unless you've cleared what's owed earlier, you stop paying 40 years after the April you leave university. This Plan 5 wipe-off date is substantially longer than for the main plans that previous students are on, which were typically 30 years. This means many people will be repaying their student loans for the substantial majority of their working lives.
  
  The debt is also wiped if you die, so it won't be an added burden to your beneficiaries. It's also wiped if you're permanently incapacitated in a way you'll be permanently unfit to work.

• You repay automatically via the payroll, just like income tax. Your employer takes the payment via PAYE (pay-as-you-earn) before you get your income, meaning you never need to make payments, therefore you can never miss payments (so no debt collectors).
  

  If you're self-employed, then just like income tax you pay it through the self-assessment scheme. In which case, do ensure you put enough money aside to cover it (and if you're likely to be self-employed, see Martin's A warning to freelancers and the self-employed blog).

• It DOESN'T go on your credit file. Therefore it doesn't impact your ability to access credit for other applications (though it can be taken into account when working out affordability, especially for mortgages). See Student loans and your credit file and Will student loans impact your ability to get a mortgage?

• You do still need to repay if you move overseas. The student loan is technically a contract, so the fact that you're no longer in the UK doesn't affect that contract.

Further quick Q&As on student loans and repaying

2. There's an implied amount that most parents are meant to contribute

• Under-25s: For most under-25s, even though you are old enough to vote, get married and fight for our country, your living loan is dependent on family residual income, which for most people is a rough proxy for 'parental income'. If your parents are no longer together, it is assessed on the income of the household you spend most time in – including, justly or not, your parent’s partner if they have one.

• Age 25+: Those aged 25 or over on the first day of the academic year automatically have independent student status, so are assessed on their own (and their co-habiting partner's, if they have one) residual income.

The living loan starts decreasing at (family) income of just £25,000

For 2023 starters onwards, the loan received starts to be gradually reduced the more above £25,000 (family) income you have – less than that, you get the full loan.

For someone who lives away from home to study, it tops out at income of roughly £62,000 (£70,000 in London, £58,000 if you stay at home to study), at which point the student gets the minimum loan – about half the full amount.

For under-25s, this missing amount is effectively an unsaid expectation of a parental contribution (though it's not enforceable) – as the only reason you get less is because your family earns more.

For September 2025 starters, the FULL annual maintenance loan in the first academic year (2025/26) is...

• £8,877 if living at home.

• £10,544 away from home.

• £13,762 away from home in London.

To work out the parental contribution, just subtract the loan you’re being given from that, or use our Parental Contribution Calculator which does it all for you (for those who won't go for a few years use the How much should I save for my child's Uni calc).

What if parents can't, or won't, contribute?

Of course, some parents won't be able to afford the contribution – and there's no easy way to force them to pay. If you are under 25, you can apply to be an estranged student, which means you'll get independent student status – but many find the criteria tough (though it's automatic if you're a parent yourself).

At least knowing there is a gap helps students and parents understand what level of funds are needed. And it's important to have this conversation together, to work out how you are going to plug the hole, or even where you study.

The media often focus on the size of the loans, but the practical complaints from existing students tends to focus on the living loans specifically and even the maximum loan not being big enough. So when deciding where to study, look at all the costs, transport, and accommodation (will you get into halls?), as that’s a key part of your decision.

This situation has worsened in recent years for two reasons:

1. While the maximum living loan has increased in line with inflation recently, it’s not done so consistently.

2. The family income threshold at which English maintenance loans start to get reduced has been frozen at £25,000 a year since the 2008/2009 academic year. Yet in that time we've had 64% (CPI) inflation. So now £25,000 isn't far from minimum wage for one earner, but this is a FAMILY income assessment. It means far far fewer students get the full living loan.

Perversely this means that those from lower income backgrounds often leave University with the largest amount of loans.

Your step-parent or parent's partner's income counts

The family residual income assessment for under-25s is based on the home you are primarily resident in. If you live with a step-parent or your parent's partner, their income is taken into account too (though siblings who are earning aren't included). See Student living costs: How much can I borrow? for more

And income is based on the tax year that ended two years before the start of the academic year. So for students starting in autumn 2026 (academic year 2026/27), the income is based on the 2024/25 tax year. However, even if the partner has moved out since then, their income for that year is still assessed, which could be grossly unfair.

Important: If household income has dropped significantly (usually by 15% or more), parents can apply for a 'current year income (CYI) assessment'.

Three quick living loan tips...

3. The amount owed isn't relevant day to day – its paid more like a 9% additional tax

This bit is important to understand, as it can turn the way you think about student loans on its head. So take your time to understand it.

Just like tax, the loan is repaid through the payroll each month, in proportion to what you earn. What you repay each month after university is 9% of everything earned above £25,000.

To emphasise this point, for a graduate who earns (for the sake of easy numbers) £35,000:

So what you owe DOESN'T impact what you repay each month or each year. This includes both the original amount you borrowed, and any interest added (which increases what you owe).

What you owe (borrowing plus interest) does matter when it comes to whether you’ll clear it within 40 years before it wipes – and therefore the TOTAL you’ll repay

While what you owe doesn't change your day-to-day or often year-to-year repayments, it's central to dictating when you stop repaying.

The latest Government predictions show that 56% of full-time higher education borrowers starting in the academic years 2023/24 and 2024/25 are expected to repay in full within 40 years, leaving most of the remaining 44% paying off their loan for the full 40 years.

• Won't clear the loan within 40 years: Those with higher loans and/or low to middle graduate earnings, will effectively feel like this is a hefty additional 9% tax for 40 years. For this group any extra borrowing or interest won't actually change things as your repayments are fixed.

• Will likely clear the loan within 40 years: Those with lower loans and/or middle to higher graduate earnings will repay this like a 9% tax, but one that could stop significantly earlier. For this group the amount of borrowing and interest has a practical impact (less borrowed, less interest means repay quicker).

In simple terms, that means while repaying things look like this...

This isn't cheap, far from it, but it does feel more like a burden of additional tax than a debt for some. Frankly it would be easier to communicate if we called it a graduate contribution system – which reflects more how it operates while you have it (though with Plan 5 as more will repay in full due to the extended repayment term, the push for that is less pressing than it was).

As the repayment threshold for Plan 5 loans isn’t far above minimum wage, you'll start repaying even when your salary is at a relatively low level.

How do you know if you'll be one who clears the loan or not?

A great frustration with the system is this is virtually impossible to know.

There are too many variables and assumptions, both on your career, income and on what will happen to the economy. Likely the best we can do is the prompt below – cut and paste into a large-language AI where you can add your specifics.

It's best to use this play with different scenarios, don't see it as an exact answer.

WARNING: It’s AI, it isn’t perfect and can hallucinate. The prompt covers the core info, and it worked on sense-check options I tried on various AIs (do try and put it in the more analytical complex, deeper thinking modes).

4. Interest is set at inflation, so are said to have no ‘real’ cost (though there's a but) – and some won't pay all the interest anyway

Student loan interest is set based on the Retail Prices Index (RPI) rate of inflation – a measure of how quickly prices of all things are rising.

The interest for the academic year is set each 1 September using the RPI for the preceding March. Inflation for March 2025 was 3.2%. So from 1 September 2025 until 31 August 2026, the interest rate for Plan 5 loans will be 3.2%.

The Plan 5 interest rate has been reduced compared to its predecessor Plan 2 – so it's important not to confuse the two:

• Plan 5 interest: Set at RPI inflation

• Plan 2 interest: Set at RPI inflation + up to 3%

In simple terms, as your interest is set at just inflation, the interest is what economists would say is at 'no real cost'.

To explain the philosophy behind this... imagine if you borrowed enough to pay for 100 shopping trolleys’ worth of goods at today’s prices:

And that's all good in theory. Unfortunately in practice sadly the RPI rate used for student loans is the higher rate of inflation, the one the Government usually uses when we pay it, rather than the lower CPI rate it usually uses when it pays us. This pushes the cost up. Typically RPI is 0.5% to 1% higher than CPI, so you could argue that difference is a 'real cost' to the loan (I asked the AI calc above to factor that in).

Interest being added doesn't automatically mean everyone repays it

Perversely with student loans, the interest added to your loan is not always the same as the interest you repay. This all relates to the fact that not everyone will clear the loan in full within the 40 years. If so then by definition you won't pay all the interest added to your loan. To give some examples:

– Lowest earners never earn over the repayment threshold, so repay nothing at all.

– Lower earners may pay some or most of what they originally borrowed within the 40 years, yet not enough to repay any interest on top. So their loans are effectively interest-free.

– Low to middle earners will repay all their original borrowing, but only some interest added, so their effective interest rate will be less than inflation.

– Mid to high earners with 56% of the 2025/26 cohort predicted to clear in full under Plan 5, more people than previously will pay all the interest (though the interest rates are lower than the previous system).

– Those with very high starting salaries will pay all the interest added, yet as they repay far quicker, they pay less interest in total.

Only those with lower borrowing and/or the higher end of graduate earnings, will repay all they borrowed in full within the 40 years, and therefore for them the interest rate added is the same as the interest rate paid. The AI prompt above will give you an estimate of the effective interest rate cost.

So while it's petrifying to see the interest growing on your statement (and when you leave Uni this will probably bother you) remember what you pay each year solely depends on what you earn. Those on lower incomes at least, don’t panic if the interest is accruing, it may be irrelevant.

5. The system can change, and has before

There are changes planned that may impact those starting soon

From January 2027 the Government plans to introduce a new ‘Lifelong Learning Entitlement’. This means the type of finance students on full-time undergraduate-type courses get will be available for single modules too, and you'll have an overall amount of finance you can get until age 60.

In reality this isn't likely to have much impact on those starting university now, as you'll stay on your Plan 5 terms (though the fact you've had this funding may be counted as using up some of your future LLE entitlement).

For those starting university in future years, funding is likely to be done under the umbrella of the LLE, but as far as we can tell, so far, it will still work in a similar way to Plan 5 does now.

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