Student Loan Interest Rate Set at 5.3% for 2026-27: What Graduates Will Pay

Published: 24 February 2026

The Event

The Student Loans Company announced today that the interest rate on Plan 2 student loans will be five point three percent for the 2026-27 tax year, starting in April 2026. This rate applies to loans taken out by students who started university between September 2012 and July 2023.

The rate is calculated based on the Retail Price Index (RPI) measure of inflation, which was two point eight percent in March 2025, plus up to three percentage points depending on income. For graduates earning above the upper threshold of forty-nine thousand one hundred and thirty pounds, the maximum rate of RPI plus three percent applies, giving five point eight percent. For those earning below twenty-seven thousand two hundred and ninety-five pounds, the rate is RPI only, two point eight percent.

For most graduates, earning between these thresholds, the rate is calculated on a sliding scale. The five point three percent figure represents the average rate across all Plan 2 borrowers.

Plan 5 loans, for students starting from September 2023 onwards, will be charged RPI only, two point eight percent, regardless of income. This is one of the few ways Plan 5 loans are more favorable than Plan 2.

Why It Matters

Five point three percent interest on student loans means debt is growing faster than most graduates can repay. If you owe forty-five thousand pounds, which is the average debt for a graduate completing a three-year degree in 2024, five point three percent interest adds two thousand three hundred and eighty-five pounds to your balance in the first year.

Most graduates do not repay anywhere near that amount in their first year. Repayments are nine percent of income above the threshold of twenty-seven thousand two hundred and ninety-five pounds. If you earn thirty thousand pounds, you repay nine percent of two thousand seven hundred and five pounds, which is two hundred and forty-three pounds per year. Twenty pounds per month.

So you owe forty-five thousand pounds. Interest adds two thousand three hundred and eighty-five pounds. You repay two hundred and forty-three pounds. Your balance increases by two thousand one hundred and forty-two pounds, even though you made payments all year. You now owe forty-seven thousand one hundred and forty-two pounds.

This is the reality for most graduates. Debt compounds faster than repayment, and the balance grows every year for the first decade or more of working life. Only when earnings rise significantly, into the forties or fifties in salary, do repayments start exceeding interest. And even then, only the highest earners will ever fully repay.

The government's own projections show that eighty-three percent of graduates will never fully repay their loans. For most, this is not a loan in any traditional sense. It is a thirty-year obligation to pay nine percent of income above the threshold, and whatever is left after thirty years is written off and transferred to taxpayers.

How Interest Rates Are Calculated

Plan 2 loans, the most common type for current graduates, charge interest based on RPI inflation plus a variable addition depending on income.

While you are studying, interest is RPI plus three percent. In 2025-26, with RPI at two point eight percent, students currently at university are accruing interest at five point eight percent from the day they take out the loan. By the time they graduate, their debt has already grown significantly beyond what they borrowed.

After graduation, interest depends on income. If you earn under twenty-seven thousand two hundred and ninety-five pounds, the repayment threshold, you pay RPI only, currently two point eight percent. If you earn over forty-nine thousand one hundred and thirty pounds, you pay RPI plus three percent, currently five point eight percent. If you earn between these amounts, the rate scales linearly.

So a graduate earning thirty-five thousand pounds, halfway between the lower and upper thresholds, pays RPI plus one point five percent, which is four point three percent currently. A graduate earning forty thousand pounds pays RPI plus two point two five percent, which is five point zero five percent.

And these rates change every year based on RPI inflation. In 2022-23, when inflation spiked, Plan 2 interest rates reached six point three percent. In 2023-24, they hit seven point six percent, the highest ever. Rates have moderated in 2026-27 to five point three percent on average, but they remain far higher than the near-zero rates of the 2010s.

Impact on Debt Growth

For a graduate with typical debt of forty-five thousand pounds, earning a typical starting salary of around twenty-eight thousand pounds, here is what happens over the first five years.

Year 1: Debt forty-five thousand pounds. Income twenty-eight thousand pounds. Repayment two hundred and forty-three pounds. Interest at three point one percent (RPI plus a small addition for low income above threshold) is one thousand three hundred and ninety-five pounds. Balance increases by one thousand one hundred and fifty-two pounds. New debt: forty-six thousand one hundred and fifty-two pounds.

Year 2: Debt forty-six thousand one hundred and fifty-two pounds. Income rises to thirty thousand pounds (modest pay rise). Repayment four hundred and eighty-six pounds. Interest at three point five percent is one thousand six hundred and fifteen pounds. Balance increases by one thousand one hundred and twenty-nine pounds. New debt: forty-seven thousand two hundred and eighty-one pounds.

Year 3: Debt forty-seven thousand two hundred and eighty-one pounds. Income rises to thirty-two thousand pounds. Repayment seven hundred and twenty-nine pounds. Interest at four percent is one thousand eight hundred and ninety-one pounds. Balance increases by one thousand one hundred and sixty-two pounds. New debt: forty-eight thousand four hundred and forty-three pounds.

Year 4: Debt forty-eight thousand four hundred and forty-three pounds. Income rises to thirty-four thousand pounds. Repayment nine hundred and seventy-two pounds. Interest at four point three percent is two thousand eighty-three pounds. Balance increases by one thousand one hundred and eleven pounds. New debt: forty-nine thousand five hundred and fifty-four pounds.

Year 5: Debt forty-nine thousand five hundred and fifty-four pounds. Income rises to thirty-six thousand pounds. Repayment one thousand two hundred and fifteen pounds. Interest at four point six percent is two thousand two hundred and seventy-nine pounds. Balance increases by one thousand and sixty-four pounds. New debt: fifty thousand six hundred and eighteen pounds.

After five years of making payments every month, this graduate owes five thousand six hundred and eighteen pounds more than when they started. Borrowed forty-five thousand, now owe fifty thousand six hundred and eighteen. The debt has grown by twelve and a half percent despite continuous repayments.

And this is with modest but realistic salary progression. If salary growth is slower, or if the graduate faces periods of unemployment, lower earnings, or career breaks, debt grows even faster.

Plan 5 vs Plan 2: Different Terms

Students starting university from September 2023 onwards take out Plan 5 loans, which have different terms. Plan 5 charges RPI only, regardless of income, currently two point eight percent. This is significantly lower than the up to five point eight percent charged on Plan 2 loans.

So new students face lower interest rates, which sounds better. But Plan 5 has worse terms overall. The repayment threshold is lower, twenty-five thousand pounds instead of twenty-seven thousand two hundred and ninety-five pounds, and it rises with inflation rather than earnings. And the repayment period is longer, forty years instead of thirty.

Lower interest, but you start repaying sooner, on a lower income, and you repay for a decade longer. For most graduates, Plan 5 means paying more over their lifetime, even with lower interest, because repayments start earlier and last longer.

Who Pays, Who Escapes

High earners, those earning sixty thousand pounds or more, will repay their loans in full and then stop paying. They pay the most in absolute terms, but they escape the system within fifteen to twenty years.

Low and middle earners, the vast majority of graduates, will never fully repay. They pay nine percent of income above the threshold for thirty years (or forty years for Plan 5), and whatever balance remains is written off. They pay less in absolute terms but pay for far longer, and their debt continues growing for much of that time.

And the highest earners, those from wealthy families who did not need loans, or those who had family pay tuition fees upfront, pay nothing. No loan, no repayment, no burden. They graduate debt-free while their peers owe forty-five thousand pounds and pay for thirty years.

So student loans create a graduate tax on middle earners that wealthy families avoid entirely and that high earners escape after paying off their debt.

Regional and Subject Variation

Graduates in London and high-cost areas face a strange paradox. They earn more on average, so they repay more. But living costs are higher, so the extra earnings are absorbed by rent and transport, and nine percent of income above the threshold still hurts.

And subject choice affects repayment. Medicine, dentistry, engineering graduates earn more on average and are more likely to fully repay. Creative arts, social sciences, humanities graduates earn less on average and are less likely to repay. So the loans work differently depending on what you studied, creating an unequal system masked by universal terms.

What to Watch Next

Interest rates for 2027-28 will be announced in February 2027, based on RPI inflation in March 2026. If inflation remains moderate, expect rates around five percent. If inflation rises, rates will follow.

Also watch for political debate around student loan reform. Labour has historically opposed tuition fees and loan systems, though the current government has not committed to abolishing fees or loans. Any policy shift would be announced at a Budget or spending review.

And watch for Student Loans Company data on write-offs. As the first cohort of Plan 2 borrowers approaches thirty years since graduation (those who started in 2012 will reach write-off in 2042), the scale of taxpayer-funded write-offs will become clear. If write-offs exceed projections, expect political pressure for reform.

What You Can Do

If you are a graduate with student loans, understand that for most people, the debt is not something you repay in full. It is a tax you pay for thirty years. Focus on maximizing your take-home income, not on clearing the debt early. Overpaying your loan is almost never financially rational unless you are a very high earner who will clear the debt soon anyway.

If you are considering postgraduate study, be aware that postgraduate loans add to your debt and you repay both loans simultaneously. Undergraduate loan repayments are nine percent above twenty-seven thousand two hundred and ninety-five pounds. Postgraduate loan repayments are six percent above twenty-one thousand pounds. Combined, you could pay up to fifteen percent of income in student loan repayments.

If you are a prospective student deciding whether to go to university, understand the financial implications. Forty-five thousand pounds of debt, growing at five percent interest, repaid over thirty years at nine percent of income. For many careers, particularly lower-paid professions like teaching or social work, university creates a financial burden that lasts decades.

And if you want to understand why student loans are structured this way, why interest compounds faster than most graduates can repay, and who benefits from a system where eighty-three percent never clear their debt, read the full deep dive on the UK Student Loan System.

Links:
[Read: The UK Student Loan System Deep Dive - How This System Really Works]
[Read: Where Is the UK Student Loan System Heading? Data Snapshot (2026)]