Student Loans: What Every Graduate Needs to Know

Student loans in the UK now come in three schemes—Plan 1, Plan 2 and the newer Plan 5—each with its own interest formula, repayment threshold and loan term. The average graduate leaves university with about £53,000 of debt, most of which falls under Plan 2, where interest can climb to RPI + 3% and repayments start once earnings exceed roughly £28,500. Recent budget decisions froze the threshold at about £29,000 for three years, meaning borrowers will begin repaying sooner and could pay up to £10,000 more over the life of the loan.

Although the rules apply equally to men and women, the practical impact falls harder on female graduates. Women are more likely to take career breaks for maternity leave or to work part‑time, which can push them below the repayment threshold while interest continues to accrue. This prolongs the debt period, erodes disposable income and hampers mortgage affordability, ultimately widening the existing gender pension gap. With Plan 5 lowering the threshold to £25,000 and extending repayment to 40 years, lower‑earning women risk paying off a loan well into retirement. Consequently, many women find themselves juggling loan payments with reduced savings, limiting long‑term wealth building.

Deciding whether to overpay a student loan requires weighing salary trajectory, remaining term and inflation expectations. As a rule of thumb, borrowers with a £50,000 balance typically only start reducing principal once earnings pass about £60,000; below that level, extra payments rarely accelerate payoff and may be better allocated to pensions or emergency funds. Treating the loan more like a progressive tax than a traditional debt can help avoid the psychological strain of ‘never‑ending’ interest. Policymakers, however, must address the threshold freeze and gender‑biased outcomes if student debt is to support, rather than hinder, financial equality.