Plan 5 English student finance: 6 need-to-knows

Six things everyone should know

There are more myths and misunderstandings about student finance than most other subjects we cover at MSE. And that's just as true of the latest student finance system.

You don’t need to pay a penny upfront to go to university, so no one should be put off from going because they think they can't afford it. The funding is there if university is right for you.

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.

You may not have a choice whether to go – for example, if you want to become a doctor, you'll need a university medical degree.

But given that with many roles the 'graduate premium' (the additional amounts graduates are expected to earn compared with non-graduates) is being eroded, you should take the time to ensure university is right for you.

The rest of this guide explains how student finance works in England if you take the loans. There are six main points to understand.

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

• You only repay when you earn over £25,000 a year – earn less and you don't pay. So if you never earn over the threshold (hopefully that won't happen), you'd never pay a penny. The £25,000 threshold is frozen until 2027, when it is 'planned' to increase with inflation.
  
  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.

• You repay 9% of everything earned above the (currently £25,000) threshold. So the more you earn, the more you repay each month...
  

  What you'll repay on a Plan 5 student loan

  Salary	What you'll repay each year
  £24,000	You don't pay
  £26,000	£90/year (9% of £1,000)
  £35,000	£900/year (9% of £10,000)
  £50,000	£2,250/year (9% of £25,000)
  £100,000	£6,750/year (9% of £75,000)

• You only start needing to repay in the April after you leave university. Though Plan 5 loan repayments won't start until April 2026 at the earliest, so if you were to drop out early, your repayments wouldn't start until then.

• 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 is substantially longer than many previous student finance plans, where the most common time the loan wiped was 30 years. This means many people will be repaying their Plan 5 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

• 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.

• Under 25: 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.

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, parental contribution – as the only reason you get less is that your family earns more.

Until recently, no official documents even hinted that parents needed to be aware of this. The lack of clarity caused friction when students arrived at university without enough funds. Especially true if they hadn't realised their child's loans were half what others got because they came from a more affluent home, and were expecting their child to manage on that amount, instead of topping it up to full amount themselve.

For years, Martin and MSE have campaigned about this information deficit, until finally in 2022, one universities minister listened. So now the correspondence refers to it a little, but still it's best to use our Parental Contribution Calculator to find out what the gap is.

For 2025/26 starters, the full loan is £8,877 if living at home, £10,544 if living away from home, £13,762 if away from home in London. The graph below shows how as your income increases the amount of loan received drops, meaning the gap – the parental contribution – between the full loan and what's received grows.

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.

And it's worth noting this situation has got worse 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 you borrow is mostly irrelevant day to day – as Plan 5 loans work more like a graduate 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.

What you repay each month depends SOLELY on what you earn.

You'll repay 9% of everything earned above £25,000. So look at these repayments for a graduate who earns £35,000 (which we use for the sake of easy numbers):

So what you owe DOESN'T impact what you repay each year. Instead its main impact is whether you'll clear the borrowing within the 40 years before it wipes or not.

It's predicted that 56% of 2024/25 Plan 5 cohort will repay in full within 40 years (you may want to read Martin's old If students won't repay – who pays? blog). Yet the majority of university leavers will be paying well beyond the old 30-year cut-off, and 44% for the full 40 years.

• For those who 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.

• For those who 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 doesn't mean it's cheap

This doesn't mean it's cheap, but for those with the loans, it's more likely to feel like a burden of additional tax than a burden of debt. It might be easier to get to grips with if it was called a graduate contribution system – which reflects more how it operates while you repay it.

Another way to look at it is the more you earn, the more you repay each month.

However, as the repayment threshold for Plan 5 loans isn’t far above minimum wage, you'll start repaying even when your salary isn't at a 'graduate premium' level.

4. Interest is added at the rate of inflation, so has no ‘real’ cost - and some won't pay all the interest anyway

The one positive change for new 2023 starters onwards is an interest rate cut. For these loans it will be set at the Retail Prices Index (RPI) rate of inflation – in the prior version, it was RPI plus up to 3%.

Student loan interest starts on day one. The rate for each new September academic year is usually fixed each year based on RPI for the prior March. Though in exceptional times (like 2023), if the RPI rate is higher than the 'prevailing market rate' – which is ill-defined, but roughly equates to typical personal loan rates – the interest will be capped at that (so below inflation).

In theory, there is no 'real cost' to the interest

Inflation is a measure of how much prices are rising. As the interest rate is set at inflation, in economic terms it is described as having no real cost. So if you borrow an amount of money that would buy 100 shopping trolleys' worth of goods at today's prices, then you only repay enough to buy the same 100 shopping trolleys' worth of goods at future prices.

Therefore your borrowing hasn't really impacted your purchasing power.

This is a neat theory. In practice though, it's not perfect. For example, the Government has chosen to base the interest on the higher RPI rate of inflation (when it's money the state pays out, it choses the lower Consumer Prices Index rate).

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 interest added ISN'T (necessarily) the same as the interest you actually pay

The interest you pay is dictated by your earnings and the fact the loan wipes after 40 years. Some may pay no interest at all. This is crucial to understand as some wrongly try to overpay loans due to misplaced fears of interest they needn't pay. Let's try and explain...

– 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.

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

Would overpaying work out better for me?

You can volunteer to overpay if you have more cash. Yet this isn't a no-brainer, in fact for some it can be a big mistake. For more detail, see our Is it worth taking (all) the Plan 5 loan? guide.

To find if overpaying is worth it, it's worth trying to get an idea of how much you're actually likely to be repaying.

Sadly, it's impossible to do it accurately. 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 (feel free to amend).

Warning: It’s AI, it doesn’t know, isn’t perfect and can hallucinate. The prompt covers the core info, and it worked on sense-check options on various AIs (do try and put it in the more analytical complex, deeper thinking modes). We hope it may help give you a rough idea, but always do a sniff test to see if it seems right. Hopefully you’ve a reasonable idea where you fit on the graduate earning level.

5. The cost from 2023 will be substantially higher than for previous generations

Here's a summary of the key changes:

If you look at this, you can see why costs are increasing…

• You repay more on the same earnings than predecessors (£207 a year, every year, more if you earn over the old threshold).

• You repay for longer (the loan wipes after 40 years, not 30).

The new system leaves many who start university straight after school still repaying it into their 60s. Many typical graduates will pay significantly more than under the previous Plan 2 system.

The only people who gain from the changes are the highest-earning university leavers (roughly the top 25%) who would've cleared their loans under the old system. This is because repaying more each year means you repay quicker, and there's less interest, thus less repaid in total.

Overall, these changes swing the pendulum of cost further towards the individual, away from the state. Government data has estimated that the state's contribution will drop from 44p in the pound to 19p under the new system, meaning the individual pays more, the state less.

6. The system can change, and has before

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