A topical subject is the rate of interest applied to outstanding Student Loan balances. This is not the same as the deduction of a Student / Postgraduate Loan via the payroll, therefore, not of direct interest to employers.
When considering studying, if the student requires funding to pay or a contribution towards the costs, they will take out a Student Loan as a Plan. The Plan and the repayment model is determined by where the borrower lived when they took out the Loan, when the course started and the type of course. We recommend reading ICB’s article ‘Which Student Loan Plan?’ that details this information.
So, the borrower will have a Loan balance which, as with any loan, will accrue interest. These vary significantly and are set annually with reference to the rate of Retail Price Index (RPI) inflation at the previous March. The following table represents the rates in place for the period 01 September 2025 to 31 August 2026 and note:
- RPI is 3.2% (as of March 2025): and
- The lower and higher interest rate thresholds for Plan 2 are relative to the tax year and as announced by the Department for Education
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Plan
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Applies to
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Interest Formula
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1
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- English and Welsh borrowers for courses starting before 01 September 2012; and / or
- Northern Irish borrowers
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Lower of:
- Bank of England base rate + 1%; or
- RPI (3.2%)
Maximum interest is the higher of the above
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2
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- English borrowers for courses starting between 01 September 2012 and 31 July 2023; and / or
- Welsh borrowers for courses starting on and after 01 September 2012
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Massive variations:
- 7.3% (RPI + 3%) - while studying (and until the following April):
- RPI - post study and earning below the lower interest rate threshold;
- Between RPI + RPI 3% - post study and earnings between the lower and higher rate thresholds;
- RPI + 3% - post study and earning above the higher rate threshold
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3
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- English and Welsh borrowers studying postgraduate masters or doctoral courses
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RPI + 3% for the duration of the Loan
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4
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Lower of:
- Bank of England base rate + 1%; or
- RPI
Maximum interest is the higher of the above
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5
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- English borrowers for courses starting on and after September 2023
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RPI + 3% for the duration of the Loan
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For Bookkeepers
This is hugely complicated for borrowers to understand which is why Student Loans and interest rates are likely to be something on the political agenda for some time. The largest debate is regarding Plan 2 Loans where the interest rate varies depending on pre or post-study and then income levels.
With regards Plan 2, some commentators will say these were only available between 2012 and 2023, and this true for English borrowers. For these, Plan 2 has been replaced by Plan 5.
However, Welsh borrowers can still take out Plan 2 Loans. So, the debates are very much an issue for current and legacy borrowers.
