How student loan interest works in the UK
Last reviewed: · Figures as of · View current rates
Interest starts from day one
A common misconception is that interest only starts once you graduate or begin repaying. In reality, interest accrues from the day your first loan payment is made — whether that's a tuition fee payment to your university or a maintenance loan payment to your bank account. This means your balance is growing throughout your time at university, before you've even started working.
How is the interest rate calculated?
The interest rate varies depending on which loan plan you are on. All UK student loan rates are linked to the Retail Prices Index (RPI), which is a measure of inflation. The March RPI figure is normally used to set rates from the following September. Caps and base-rate changes can also affect the rate during the year.
Plan 1 & Plan 4
These plans use the lower of RPI or the Bank of England base rate plus 1 percentage point. The current rates are 4.1% for Plan 1 and 4.1% for Plan 4. See GOV.UK's current interest rates.
Plan 2
The usual rate is RPI plus 3 percentage points while studying, subject to the current cap. After the study-rate period ends, income determines the rate:
- Up to £29,385: RPI only, currently 4.1%.
- Between £29,385 and £52,885: RPI plus up to 3 percentage points, increasing with income and limited by the cap.
- At least £52,885: RPI plus 3 percentage points, limited by the cap.
The current maximum is 6.0% (max). The Student Loans Company's Plan 2 guidance explains the income bands and when the study-rate period ends, including the rules for part-time courses.
Plan 5
Plan 5 charges RPI without an income-based margin. Its current rate is 4.1%. Compare repayment thresholds and write-off rules as well as interest when looking at different plans.
Postgraduate Loans
Master's and Doctoral loans from England or Wales normally charge RPI plus 3 percentage points, subject to the current cap. The rate is not based on income. The current rate is 6.0% (max). See the Postgraduate Loan interest guidance.
What is RPI?
RPI (Retail Prices Index) is a measure of consumer price inflation in the UK. It tends to run slightly higher than CPI because it includes housing costs like mortgage interest payments. The government uses the March RPI figure each year to set student loan interest rates from the following September.
The RPI figure currently used in this site's loan projections is 4.1%. Future RPI and future interest rates are assumptions, so a long-term projection will change if those assumptions change.
Why does my balance keep growing?
For many borrowers — especially those on Plan 2 and Plan 5 — the interest added each year exceeds the repayments deducted from their salary. This means the outstanding balance actually increases over time, even though you are making repayments.
A growing balance does not, by itself, increase the compulsory repayment taken from your income. It can affect how long you repay and whether the balance is cleared before write-off. Compare those outcomes under different income and interest assumptions.
Interest rate caps
A cap can limit the rate below the usual RPI-based formula. The current Plan 2 maximum is 6.0% (max); the Postgraduate Loan rate is 6.0% (max). The government's cap announcement explains the limit for the 2026/27 academic year. Check our rates and thresholds page and official guidance when reviewing a projection.
Compound interest
Student loan interest is calculated daily and added to the balance monthly. This means interest is calculated on the total amount owed (including previously accrued interest), not just the original amount borrowed. Over a 30–40 year loan term, this compounding effect means the total interest charged can significantly exceed the original debt. The official loan terms explain how interest is applied.
See your own interest projection
Use our student loan repayment calculator to see an estimate of how interest accumulates, year by year, based on your salary and plan type.