How do student loans work?

If you're thinking about going to university, you've probably got questions about student loans.

The good news is that student loans are designed to be manageable, and they work differently from other types of borrowing. Let's break down everything you need to know.

What are student loans?

Student loans are financial support provided by the government to help you cover the costs of higher education. In England, you can apply for two types of student loans:

• Tuition fee loans cover the cost of your university course. The money goes directly to your university, so you never see it yourself. For the 2025/26 academic year, most standard undergraduate courses charge up to £9,535 per year.
• Maintenance loans help with your living costs while you're studying. This includes accommodation, food, travel, books, and other essentials. The amount you receive depends on your household income, where you live, and which year of study you're in.

How does repayment work?

Here's where student loans differ from traditional borrowing: you only repay when you're earning above a certain threshold. The year you started studying will determine which ‘plan’ you are part of.

The current is Plan 5 (students who started their courses from September 2023 onwards), and you'll only start repaying your loan once you earn over £25,000 per year.

Repayments are taken automatically from your salary before you receive your wages, just like tax. You'll repay 9% of anything you earn above the threshold.

Example: If you earn £30,000 per year, you'd repay 9% of £5,000 (the amount above the threshold), which works out at £450 per year or about £37.50 per month.

If your income drops below the threshold — perhaps you take a career break, go part-time, or face redundancy — your repayments automatically stop. There are no penalties for this.

What is the interest rate on student loans?

Interest is charged on your student loan from the day your first payment is made to you or your university. For Plan 5 loans, the interest rate is set at RPI (Retail Price Index), which is a measure of inflation.

This means the real-world value of your debt doesn't increase over time — it simply keeps pace with rising prices.

The rate is adjusted each year, so you'll pay different rates throughout your repayment period. Since many graduates won't repay their loan in full before it's written off, the interest rate often matters less than you might think.

When does your student loan get written off?

Any outstanding balance on your student loan is completely written off after 40 years for Plan 5 loans. This means you'll never repay more than you can afford, and there's no pressure to clear the debt early.

A lot of graduates won't repay the full amount they borrowed, and that's absolutely fine — the system is designed this way.

Does a student loan affect your credit score?

This is one of the most common questions students ask, and the answer might surprise you: student loans don't appear on your credit file and don't affect your credit score.

Unlike personal loans, secured loans, credit cards, or mortgages, student loans aren't reported to credit reference agencies like Experian, Equifax, or TransUnion. This means that having a student loan won't:

• Lower your credit score
• Appear on credit checks
• Stop you from getting a mortgage, credit card or car finance
• Be considered "debt" in the traditional sense by lenders

However, student loan repayments can indirectly affect your ability to borrow.

When you apply for a mortgage or other significant lending, lenders assess your affordability by looking at your income and outgoings.

Since student loan repayments come directly from your salary, they reduce your disposable income. Lenders will factor this in when calculating how much you can afford to borrow.

For example, if you're earning £35,000 and repaying £75 per month on your student loan, a mortgage lender will see that you have £75 less available each month for mortgage payments. But this is very different from having a poor credit score or being in debt that limits your options.

Should you repay your student loan early?

For most graduates, paying off your student loan early doesn't make financial sense.

Since repayments are tied to your income and the loan is eventually written off, you're better off using any extra money to save for a house deposit, build an emergency fund, or pay off higher-interest debt like credit cards.

The bottom line

Student loans are designed to make higher education accessible without creating unmanageable debt. They won't damage your credit score, and you'll only repay what you can afford based on your earnings. While they do reduce your disposable income, they shouldn't stop you from achieving your financial goals in the future.