Student loan repayment threshold changes: everything you need to know

Going to university is an exciting but also an expensive endeavour. 

We look at the recent changes in student loan interest rates and repayment thresholds and how they affect you after graduation.

Have student loan thresholds changed? 

Yes, student loan repayment thresholds for the 2024/25 financial year have changed as of 6 April 2024.

These thresholds determine how much a graduate needs to earn before repayments are taken from their salary and are adjusted each year to keep pace with inflation.

The new thresholds will stay in place until 5 April 2025, when they’ll be reviewed again.

While the thresholds are tied to the Retail Price Index (RPI), the interest rates applied to student loans are updated annually in September.

From 1 September 2024, the interest rates for most student loans have also changed. Plan 2 loans and Postgraduate loans (Plan 3) will have the highest rates, capped at 7.3% (RPI + 3%), while Plans 1, 4, and 5 will have rates of 4.3%.

Over the past few years, the interest charged on student loans has fluctuated, largely due to changes in RPI.

In recent years, particularly high inflation rates have driven up the cost of borrowing. However, the latest adjustment for September 2024 reflects a more manageable RPI of 4.3%, providing a clearer outlook on interest rates moving forward.

To get a better grasp of student loans and all the options available to you, check out our guide to everything you need to know about student finance.  

How significant are the student loan threshold changes? 

While the changes to student loan repayment thresholds for 2024/25 aren’t insignificant, they’re unlikely to make a substantial difference for the average borrower.

Although a higher repayment threshold allows graduates to keep more of their earnings before repayments kick in, the overall loan balance will still increase each year due to interest.

Generally, a higher threshold is a positive shift, giving graduates more financial flexibility in those early career years after leaving university.

The government predicts that 65% of full-time undergraduates starting in 2023/24 will repay their loans in full, up from just 27% for the previous cohort, thanks to reforms aimed at new students.

Ultimately, while these adjustments are a step in the right direction, borrowers should keep in mind their loans will continue accumulating interest until fully repaid.

What is a student loan repayment plan?  

A student loan repayment plan determines how much you repay based on the type of loan you took out, where you live, and when you started your studies. 

• Plan 1: Plan 1 is for students who took out loans before 1 September 2012 in England, Wales, or Northern Ireland. It also applies to some Scottish students who began their studies before 2006.
• Plan 2: This plan covers loans for students who started university in England or Wales after 1 September 2012. It typically applies to undergraduate students, and repayments are also income-based.
• Plan 4: This plan applies to Scottish students who took out loans after 2006 but before 2012.
• Plan 5: Plan 5 applies to all students who started university in England from September 2023 onward.
• Postgraduate loan: Postgraduate loans, also known as Plan 3, are for students pursuing master’s degrees or other postgraduate qualifications. 

How do student loans work? 

Student loans in the UK are repaid through the tax system. Once your income exceeds the repayment threshold for your plan, a percentage of your salary above that amount will automatically go toward repaying your loan.

The repayment percentage is typically 9% of your earnings above the threshold for undergraduate loans and 6% for postgraduate loans.

One important thing to remember is that student loans are written off after a certain period. 

For most plans, this happens after 30 years, although there are exceptions. For example, Plan 1 loans are written off when you turn 65.

With the new threshold changes and higher interest rates, recent graduates may face steeper costs than those who have been repaying for several years.

Graduates on Plan 2 and postgraduate loans will see the most significant interest hikes, which could result in higher overall repayments.

What is the student loan repayment threshold? 

The student loan repayment threshold 2024/25 is the income level at which you must start repaying your loan. This repay student loan threshold is adjusted annually based on inflation.

The thresholds are as follows:

Plan 1: £24,990 (rising to £26,065 from 6 April 2025)

Plan 2: £27,295 (rising to £28,470 from 6 April 2025)

Plan 4: £31,395 (rising to £32,745 from 6 April 2025)

Postgraduate loans and Plan 5 loans have fixed thresholds of £21,000 and £25,000, respectively, with the Plan 5 threshold remaining frozen until April 2027.

Should I pay off my student loan? 

In short, it’s usually not the best idea to pay off your UK student loan faster than you have to. While it may seem odd to delay repayments, student loans work differently than most other debts.

First off, these loans get written off after a certain period. For Plan 1, loans are wiped out after 25 years or when you turn 65, depending on when you started studying.

Plan 2 loans clear 30 years after the repayment start date, while Plan 4 loans will be written off either 30 years after the repayment starts or when you turn 65—whichever comes first. 

As for Plan 5 loans, introduced in 2023, these will be written off 40 years after the first repayment is due, so that extended timeline is worth considering.

Second, you won’t have to worry about aggressive debt collection; repayments are automatically taken from your salary once you earn above the threshold.

If your income drops, repayments pause, so you don’t have to stress about missing payments.

Lastly, many borrowers may never fully repay their loans, especially if their earnings stay modest. Instead of focusing on student loans, it’s better to prioritise any private debts, like credit cards, since those can hurt your credit score and borrowing potential.

Worried about how much you’re borrowing? Here are the 4 best ways to reduce student debt. Our article on hardship funding for students might also prove to be useful, too.

Get expert financial advice

Understanding the latest changes to student loan repayment thresholds in 2024/25 and interest rates is crucial for navigating your financial journey after university.

While these adjustments offer some benefits, they also highlight the importance of being aware of how student loans function and the timelines for repayment.

As you consider your options, remember to weigh the pros and cons of paying off your loans against the unique conditions of each repayment plan.

Let Unbiased match you with a financial adviser for expert financial advice tailored to your student loan situation and overall financial goals.

If you found this article helpful, you might also find our articles on payday loans and what is a financial coach informative, too!