If you’re a Brit with a degree, you’re probably familiar with the UK’s student loan system. Essentially, you borrow a small fortune to get a degree, and then when that degree gets you work, you use your wonderfully big salary to pay that small fortune back.
The problem is that as a freelancer, you’re entirely responsible for managing your own student loan repayments. And it’s no small sum – you’re required to pay 6-9% of your income above the repayment threshold, depending on your student loan plan. If you defer your payments until the end of the financial year, you might face a substantial bill.
Because of all this, we recommend saving for your student loan repayments throughout the year, instead of leaving it until the very end. And if you have exceptionally high student loan debt (oof), there are a few things you may want to consider when planning your repayments.
Let’s crack into it!
- A brief history of student loans in the UK
- How do student loan repayments work?
- How are student loan repayments calculated?
- How is interest on student loans calculated?
- When do student loan repayments begin?
- Student loan write-offs
- How to pay back your student loan
- Making extra voluntary payments
- Repaying your student loan while overseas
- Should you pay back your student loan faster?
- Let Hnry do it for you
Student loans in the UK
Once upon a time, university education in the UK was as free as the wind. Alongside tuition, students were even eligible for maintenance grants for living costs. Ah, the good old days.
Fast forward to 1998, when tuition fees were instituted at £1,000 per year. A year later in 1999,
Scotland and Wales brought in their own acts on tuition fees, resulting in several different student loan repayment plans (more on this later).
By 2004, the Higher Education Act enabled English universities to set their own fees, initially capped at £3,000 per year. Similar policies were introduced in Northern Ireland, Scotland and Wales. Today, that cap in England has reached a whopping £9,250.
To support students with the cost of education, the UK rolled out a student loan system. These loans cover tuition fees and provide maintenance loans (goodbye, grants). Unlike interest-free loans elsewhere, UK student loans gain interest from the get-go, especially for those in England and Wales who started uni in 2012 or later, where the interest rate increases in line with the Retail Prices Index (RPI).
As it stands, millions of former students in the UK are managing student loan debt, with total outstanding loans surpassing £225 billion as of 2023. So, really, if you still have a hefty student loan, welcome! You’re in great company.
How do student loan repayments work
Alright, we’ve (tried to, briefly) covered the history of student loans in the UK – here’s how it all works in practice.
Understanding student loans in the UK isn’t exactly a walk in the park. Those aforementioned multiple repayment plans make it all a bit of a labyrinth. For starters, what plan you’re on depends on where you lived when you took out a loan, when you started your course, and what kind of course you studied.
England (Student Finance England)
Your repayment plan is based on course start date and type:
- Plan 2: For courses started between 1 September 2012 and 31 July 2023, and Higher Education Short Course Loans.
- Plan 5: For undergraduate, PGCE, or Advanced Learner Loan starting on/after 1 August 2023.
- Postgraduate Loan: For postgraduate master’s or doctoral courses.
Wales (Student Finance Wales)
- Plan 2: Undergraduates or PGCE from on/after 1 September 2012.
- Postgraduate Loan: For master’s or doctoral courses post-2012.
Scotland (Student Awards Agency Scotland)
- Plan 4: For all courses.
Northern Ireland (Student Finance Northern Ireland)
- Plan 1: For all courses.
Phew, did you follow all that?
How are student loan repayments calculated?
Your repayments are based on the income you earn over your plan’s threshold. Your income includes everything before deductions – salaries, bonuses, and your freelance income.
Thresholds adjust every April. For 2025:
- Plan 1 threshold: £26,065 a year
- Plan 2 threshold: £28,470 a year
- Plan 4 threshold: £32,745 a year
- Plan 5 threshold: £25,000 a year
- Postgraduate Plans threshold: £21,000 a year
You’ll need to repay 9% of your income over the threshold if you’re on Plan 1, 2, 4, or 5.
You’ll need to repay 6% of your income over the threshold if you’re on a Postgraduate Loan plan.
How is interest on student loans calculated?
Great question! The short answer is that it’s complicated.
Interest starts accruing for your student loan from the very first payment you receive. The rate at which it’s earned depends (again) on which repayment plan you’re on.
Without getting too much into the weeds of it all, the rate of interest for each plan is calculated using the Retail Prices Index (RPI), or the bank base rate.
💡 RPI is a measure of inflation, tracking the average cost of a range of goods and services.
💡 The bank base rate is the official interest rate set by the Bank of England, which then influences interest rates set by all other banks.
Each year on September 1st, the RPI rate is fixed for the year, based on the RPI rate of the most recent March. This forms the basis of student loan interest rate calculations for all five student loan plans.
Plan 1 and Plan 4
For both plan 1 and plan 4, the interest rate is based on the RPI or the bank base rate plus an additional 1%, whichever is lower.
The tricky bit is that this calculation isn’t static, meaning that as the bank base rate rises and falls, the interest rate could in theory rise or fall.
For example, if RPI is set at 2.5%, and the bank base rate in September is 2%, plus an additional 1%, making it 3% in total, the student loan interest rate will be 2.5% as per the RPI.
If the bank base rate were to then drop in December to 1.4%, this plus the additional 1% would be 2.4% – lower than RPI. The student loan interest rate would then drop to 2.4%, until the bank base rate +1% exceeds RPI again.
This mechanism acts sort of as an automatic cap on the interest rate, in case inflation rises too high too quickly.
Plan 2, 5, and Postgraduate Plans
Interest rates on the remaining three plans are calculated based solely on the RPI, with additional percentages added on top, depending.
Plan 2
During your study period, interest is accrued at a rate of RPI +3%.
Once you’ve finished studying, interest is calculated based on your income:
- If you earn £28,470 or less, interest is set at the RPI rate
- Once you earn more than £28,470, the interest rate rises on a sliding scale to a maximum of RPI +3% for those on £51,245 or more.
Plan 5
Interest is based solely on RPI.
Postgraduate Plans
Interest is the RPI +3%.
With these three plans, the government has the power to cap interest rates if they decide inflation is too high.
For example, in 2022, the RPI was set at 9%. The government decided to cap interest rates for plan 2 at:
- 6.3% from September to November
- 6.5% from December to February
- 6.9% from March to May
- 7.1% from June to August
These caps were temporary, however, and up to the discretion of the government at the time.
Current student loan interest rates (as of September 2025)
Yeah, like we said, complicated! Let’s lay it all out in a table.
| Plan | How interest is calculated | Current interest rate |
|---|---|---|
| Plan 1 | RPI, or bank base rate +1%, whichever is lower | 3.2% |
| Plan 2 | During study: RPI + 3%Post-study: RPI if income is £28,470 or less, rising on a sliding scale to RPI + 3% once income is £51,245 or morePotential to be capped | 3.2% - 6.2%, depending |
| Plan 4 | RPI, or bank base rate +1%, whichever is lower | 3.2% |
| Plan 5 | RPIPotential to be capped | 3.2% |
| Postgraduate Plans | RPI + 3%Potential to be capped | 6.2% |
When do student loan repayments start?
You’ll begin making repayments at the following times:
- For full-time students: The first April after you finish your course
- For part-time students on a course lasting over four years: The fourth April since your course commenced
- For those on Plan 5: From April 2026 onwards
Remember, you’ll only need to start making repayments once your income is over the threshold. But your loan will start earning interest from the get-go!
How to check your student loan balance
Curious about how much you owe? You can log into your student finance online account to find out (it’s easy to create one if you haven’t got one already).
From there, you can check which payment plan you’re on, your repayment progress, and how much interest has been tacked on. Handy, right?
You can also make voluntary payments (more on this in a sec) or update your details.
Student loan write-offs
In the UK, your loan gets written off after a set period, no matter what’s left to pay on it. The timing of this write-off depends on your repayment plan as follows:
Plan 1 write-offs:
If your first loan was received on or after 1 September 2006, it will be written off 25 years after the first April your repayment was due.
For loans received before 1 September 2006, they’re written off when you turn 65.
Plan 2 write-offs:
These loans will be cleared 30 years after the first April you needed to start repaying.
Plan 4 write-offs:
Loans granted on or after 1 August 2007 are wiped 30 years after the initial April repayment was due.
For loans made before 1 August 2007, they’re erased at age 65 or 30 years post-April due date – whichever arrives first.
Plan 5 write-offs:
Plan 5 loans vanish 40 years after the first April you had to repay.
Postgraduate loan write-offs:
For students in England or Wales, these loans are cancelled 30 years from the first April you owed a repayment.
If you’re a postgraduate in Northern Ireland, you fall under Plan 1, and in Scotland, you’re on Plan 4.
Note: You can’t simply skip payments until the write-off period ends (we see you wondering!). If you earn over the income threshold, you must make repayments to avoid penalties and cover any missed payments.
How to pay back your student loan
If you have a salaried job of any kind, your repayments will be taken out of your pay by your employer at the same time as tax and national insurance.
For your freelancer income, HMRC calculates repayment based on your self-assessment tax return, so you pay it alongside your tax bill.
Making extra voluntary payments
You can make extra repayments to pay off your loan quicker or reduce the amount, but these are in addition to the compulsory repayments you need to pay if you earn over the income threshold.
You can also decide exactly how they’re applied – whether it’s reducing the total balance or targeting a specific loan plan if you have several.
Making these payments is easy: you can do it through your online account, or by credit card or cheque.
Repaying your student loan while overseas
Paying back your student loan while living overseas is quite similar to the process in the UK, with the main difference being the unique repayment thresholds for each country.
When you’re abroad for more than three months, your repayment amount will be determined by the minimum required for your plan in a specific country.
You can make payments through your online account, or via international bank transfer (using your IBAN).
Should you pay your student loan off faster?
Outside of the minimum repayments and obligations, should you be proactively paying off your loan?
The answer is it really does depend (sorry!). When asking yourself this question, there are a few things you need to consider for yourself and your situation:
1. Write-offs
Think about how much time is left before your loan is written off, along with how much is left to pay.
2. Interest rates
Since student loan interest rates are linked to the RPI, they’re subject to change. If the RPI increases dramatically, your compulsory repayments may not cover the interest accrued.
3. Your risk tolerance
If you have a high tolerance for risk, you may be more inclined to put your money into high-reward investments that have the potential to net you significant gains (or significant losses).
But if you have a low-risk appetite, it might be more important for you to pay off your ‘low risk’ student loan before anything else. After all, as we’ve seen over the past few years, no one can accurately predict interest rates!
4. Applying for a mortgage
Student loans can impact the amount a bank will let you borrow when buying a house. If you plan on getting your own place soon, it may be worth seeing if you can lower your student loan balance.
We recommend talking to your bank about it first though, before you go dipping into your deposit!
5. Overseas admin
If you’re heading overseas for a long period of time, you’ll have a bit of extra admin to deal with, as well as handling all the local tax implications.
It’s not a big deal, but paying off your student loan means one less piece of admin to think about. Say goodbye to HMRC, and hello to the European/Asian/American sun, sand, and surf (or wherever else takes your fancy).
6. The mental load
Many ex-students are grateful for their education, but still feel burdened by the weight of their student loan. If this is the case for you, all the maths in the world can never compare to the feeling of finally paying it off.
Don’t forget to throw a massive party when that loan balance hits £0. You’ll have earned it.
Automate student loan repayments with Hnry
Look. You’re busy. We get it. You don’t need to be reading yet another article about money you owe HMRC. Which is why we really recommend you start using Hnry.
(Yes, we’re biased; hear us out.)
Hnry is an award-winning tax and financial administration service for sole traders. For just 1% of your self-employed income, capped at £600 +VAT, we will completely sort out your compulsory student loan repayments, alongside your:
- Income tax
- VAT
- National insurance contributions
- Private pension contributions (optional)
We also complete and file all tax returns, as part of the service.
Whether you’re just starting out, or an industry veteran, Hnry is designed for all sole traders. We make sure that you never know the horror of an unpaid tax bill – ever. And that’s a big deal, believe us.
Forget your student loan exists. Join Hnry today.
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