Photo by Vadim Sherbakov on Unsplash
If you’ve got a child heading off to university, or you’re about to go yourself, the numbers look terrifying. Tuition fees of £9,250 a year. Maintenance loans on top. Three or four years of that. It’s easy to look at the total and panic about starting adult life tens of thousands of pounds in debt.
Here’s the thing almost nobody explains properly: the UK student loan system doesn’t work like any other debt you’ll encounter. It doesn’t affect your credit score. You don’t make fixed monthly payments regardless of circumstance. And for a large chunk of graduates, a meaningful portion of what they borrow is never actually repaid — it gets written off.
This article walks through how the loan actually works, what you’ll really pay back, and the decisions that matter more than people think — like whether parents should try to cover costs upfront instead.
What you can actually borrow
There are two separate loans, and they work differently.
Tuition fee loan — pays your university fees directly. In England, that’s up to £9,250 a year for most courses. You never see this money; it goes straight from the Student Loans Company (SLC) to your university.
Maintenance loan — for living costs: rent, food, books, nights out. This one depends heavily on household income, where you study, and whether you live at home. For the 2026/27 academic year, most students living away from home outside London can expect a maintenance loan somewhere in the region of £8,000–£10,000, though the exact figure depends on your family’s income and is recalculated each year.
Scotland, Wales and Northern Ireland each run their own systems with different fee caps and loan structures, so if you’re outside England, check the specific rules for your nation on gov.uk or your devolved funding body.
Why this isn’t really “debt” in the normal sense
This is the biggest misconception, and it trips up sensible, careful people constantly: treating a student loan like a credit card or personal loan you need to aggressively pay off.
It doesn’t work that way. Three things make it fundamentally different:
- You repay based on income, not the amount borrowed. Your monthly repayment is a percentage of your earnings above a threshold — not a fixed sum based on your debt.
- Unpaid balances get wiped after a set number of years. Depending on when you started, this is typically 30 or 40 years after you become eligible to repay, after which anything outstanding is cancelled.
- It doesn’t show up on your credit report and doesn’t affect your ability to get a mortgage in the way other debt does (though the monthly repayment amount is factored into affordability checks, since it reduces your take-home pay).
This means many graduates — particularly those in lower or mid-range earning careers — will repay only a fraction of what they borrowed before it’s written off. For others, especially higher earners, the loan behaves more like a graduate tax that happens to be capped.
How repayments actually work
You don’t start repaying until you earn above a set threshold, and the system is structured in “plans” depending on when and where you studied.
| Loan plan | Who it applies to | Repayment threshold (roughly) | Repayment rate above threshold |
|---|---|---|---|
| Plan 2 | Started English/Welsh uni 2012–2022 | Around £28,000/year | 9% of income above threshold |
| Plan 5 | Started English uni from 2023 onwards | Around £25,000/year | 9% of income above threshold |
| Postgraduate loan | Master’s/PhD loans | Around £21,000/year | 6% of income above threshold |
These thresholds are reviewed and can change, so always check current figures on gov.uk rather than relying on a number you read somewhere once.
The repayment comes straight out of your salary through PAYE, the same way income tax and National Insurance do. You don’t do anything — no bill arrives, no direct debit to set up. If your income drops (redundancy, career break, part-time work), repayments drop or stop automatically.
Should parents pay fees upfront to “avoid the debt”?
This is where good intentions can lead to the wrong decision. Some families, if they have the savings, consider paying tuition fees upfront to stop their child “starting life in debt.”
But because repayments are income-based and the balance gets written off eventually, paying upfront doesn’t necessarily save money — it can simply mean handing over cash that didn’t need to leave the family’s hands at all. If your child goes on to have a modest-to-average graduate salary, they might repay far less than the full fee amount over their working life anyway — meaning the family has pre-paid an amount the government might never have collected.
The exception: if you’re confident your child will have a high and rising income for decades (certain professions — law, finance, medicine specialism), they’re more likely to repay the loan in full, plus interest, over time. In that case, the maths shifts and it becomes a genuine trade-off between paying now versus paying more later through interest.
There’s no universally right answer here — it depends on realistic expectations about future earnings, not fear of the word “debt.”
Interest: the part that sounds worse than it usually is
Interest accrues on the loan while you study and after, tied to inflation (specifically RPI, the Retail Prices Index) plus sometimes a small additional percentage depending on income and loan plan. On paper, the balance can grow substantially over the years — graduates often see their “debt” figure rise even while they’re making repayments.
This looks alarming, but for most people it’s largely irrelevant. If you’re on a repayment plan with a write-off date, what matters is whether you clear the loan before that date — not the headline balance. Many graduates never clear it, and the interest accumulated along the way simply gets written off with the rest.
The people for whom interest genuinely matters are high earners likely to repay the loan in full before the write-off point — for them, the total cost including interest becomes a real number worth understanding.
What it means for your monthly budget after graduating
Once you’re earning above the threshold, student loan repayments function like an extra, informal top slice of tax. Someone on Plan 5 earning £30,000 a year would repay 9% of the amount above roughly £25,000 — in this example, 9% of £5,000, which works out to about £450 a year, or roughly £37 a month. Earn more, and the amount taken grows accordingly, but it only ever applies to earnings above the threshold.
This is worth factoring into any post-graduation budgeting, alongside income tax, National Insurance, and — if auto-enrolled — workplace pension contributions. It’s one more deduction from gross pay, not a separate bill to manage.
The bottom line
- Don’t panic at the total loan amount — it’s not comparable to a mortgage or credit card. What matters is the monthly repayment as a percentage of income, and the fact that unpaid balances are written off eventually.
- Check your specific plan and threshold at gov.uk/repaying-your-student-loan rather than relying on generic figures, since thresholds are reviewed and change.
- Think twice before paying tuition fees upfront as a family unless you have strong reason to believe the graduate will be a high, sustained earner — for most people, it may mean paying more than the system would ever have collected.
- Budget for the repayment as a deduction from gross pay, the same way you think about tax and National Insurance — it comes out automatically, so there’s nothing to actively manage once you’re employed.
- If you’re self-employed after graduating, note that repayments are calculated differently — through your Self Assessment tax return rather than PAYE — so factor this into any tax planning.
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