- There was £294.6 billion outstanding on undergraduate student loans (higher education loans) in England in 2025/26 – up 10.5% in a year (source: Student Loans in England: Financial Year 2025-26 – GOV.UK)*
- More than three-quarters (76.1%) of higher education loans are Plan 2 and 10.4% are Plan 5
- The total interest racked up on higher education loans was £12.2 billion compared with £15.2 billion a year earlier – largely due to a reduction in the rate of RPI
- The average amount owed when someone starts repayments was £47,730
- 3.1 million people were liable to repay, in employment and made a payment in 2025/26, compared to 1.1 million in the tax system but not yet required to pay
- Voluntary repayments were up 4.8% to £733.7 million
- What graduates and their families should consider before deciding to repay early
Charlene Young, senior pensions and savings expert at AJ Bell, comments:
“Today’s figures will further frustrate graduates who feel student loan interest and repayments are holding them back from hitting other milestones in their lives. Given that the government says it’s not prepared to overhaul the system, graduates and their families will want to consider the best approach for them.
“By the time graduates reached the date when payments can first be due, they’d racked up debts of £47,730 on average in the 2025/26 financial year. And the costs keep mounting, because over the year, Plan 2 loans accrued £9.8 billion in interest, and repayments hit £5.3 billion.
Source: Student Loans Company
No changes to the system
“It will be unwelcome news that despite all the conversations around Plan 2 student loans in recent months, the government has said it’s not planning to make any changes. The Treasury Committee inquiry into student loans and the taxation of graduates received over 52,000 responses – one of the highest response rates for a select committee inquiry ever recorded. But when ministers gave evidence, they were clear there’s no more money to reform the system.
“Evidence submitted to the enquiry showed that it was the weight of the debt that hurt the most. In many cases, the debt was growing even while repayments were being made, because they didn’t cover the interest.
“The decision to cap the interest paid on Plan 2 and 3 student loans at 6% from September will help alleviate some concerns from higher earning graduates who are currently facing 6.2% thanks to the RPI plus 3% formula. Those currently earning £44,300 or less will see no benefit from the cap as their rate is already lower than 6%. Even the fact these rates are linked to RPI seems unfair, given it’s an outdated measure of inflation, and it tends to be higher than CPI.
To overpay or not to overpay?
“There are around 4 million graduates who hold a plan 2 student loan. The government’s changes continue to leave some questioning whether they should pay off the debt more quickly using voluntary repayments. There are plenty of people who do, with £733.7 million overpaid this way in 2025/26.
“The high interest rate (despite the cap) on plan 2 loans feels like a significant incentive, but you want to avoid shooting yourself in the foot by paying more than you would letting the loan run its course until its written off. Whether it works for you depends on your own circumstances, how long you have remaining on the 30-year repayment term, your future earnings and inflation.
“Those who have worked for longer probably have a clearer idea of where their career may take them, giving them a better grasp on when they might wipe the debt through salary deductions. That information makes it easier to weigh up the pros and cons of making overpayments.
“As a rough guide, around the £60,000 salary mark, graduates with a £50,000 balance on a plan 2 loan start paying back the capital on the loan. Once earnings exceed this level, it becomes increasingly likely you’ll repay the debt before it is written off, so there’s a stronger case for freeing yourself of the student loans company quicker if you can.
“Below this salary level, you need to weigh your circumstances carefully. If you’re earning £40,000 and don’t expect your earnings to grow significantly above inflation, you may find the upfront cost of clearing the debt isn’t justified.
Plan 5 loans – will you repay?
“English people who started university since September 2023 will have borrowed through Plan 5. Repayments are set at 9% of earnings above the current £25,000 threshold. This threshold is due to rise in line with RPI inflation from April 2027, when the first cohort of graduates from three-year courses will begin making repayments. Any outstanding balance is written off after 40 years.
“There is no single earnings figure that determines whether a student loan will be fully repaid. It depends on a graduate’s earnings trajectory, which is almost impossible to predict. To illustrate this, Baroness Jacqui Smith told a recent Treasury Select Committee session that someone graduating now on the Plan 5 scheme could earn at the £25,000 threshold throughout their working life and never repay a penny, despite earning around £1.74 million before tax. By contrast, a very high-earning graduate could repay the loan in full in a relatively short period, potentially clearing the balance after earning around £550,000 over just a few years.
Thinking about helping your child or grandchild out?
“To get the full maintenance loan, a household must earn £25,000 or less, which is very low when you consider it applies to total household income, and it’s been frozen since 2009. After a 27‑year freeze, most parents will be expected to contribute towards their children’s university costs anyway. And while student loans can be costly for some, many graduates will repay less than they borrow, meaning there’s little financial benefit in clearing the debt early.
“If you’re planning to help out, first and foremost, don’t put yourself or your family under financial strain. If you’re stretching your budget or considering taking on additional borrowing, that’s a significant risk. A commercial loan may offer a lower interest rate, but it must be repaid regardless, unlike income‑contingent student loans.
“If you can afford to help with university costs upfront or contribute to repayments, the next question is whether it actually makes financial sense.
“That’s difficult to answer, as graduates who go into high‑earning careers are more likely to repay the full loan plus interest, which could make paying upfront worthwhile. But committing tens of thousands of pounds now could cost you in the long run if your child ends up in a lower‑paid profession.
“In practice, many families hedge their bets, using the student loan system initially, while keeping savings in reserve. This allows them to reassess later and decide whether voluntary overpayments make sense.
“If, by their mid‑20s, it looks like clearing the balance would be beneficial, parents could then step in and help repay the loan. That approach requires open conversations about earnings and finances once their child starts work.
“More broadly, investing for the long term can give you flexibility. Building up a pot over time means you can decide later whether to fund university costs, help with a house deposit or support your child in other ways depending on what’s most valuable.”
*Data is also available for Scotland, Wales and Northern Ireland, as well as comparisons of figures across the nations.
