Five things you need to know about Plan 5 student finance 2025/26

While I still believe if University is right for you, you should grab the opportunity… the fact the cost may be so high does mean you need to seriously question if University is REALLY right for you. And if it is, as it will be for some, whether the institution you're selecting and the course you're picking are right or not.

University can be, and often is, life enhancing and in many cases leads to increased earnings potential, but other options like apprenticeships, or getting into the workplace quicker and learning on the job, may be better for some, and should be explored too.

So on to my need-to-knows, including a how much will you pay AI calc. Plan 5 loans are for first-time undergraduate English residents, who started in or after 2023, and future students too. The figures do change slightly each year, so it's worth knowing I've based them on the current academic year. Those from elsewhere in the UK or on earlier plans can go to our students guides for specific info for you.

1. The student loan price tag can be £60,000, but that’s not what you pay

Students don’t need to pay the University or other higher education institutions directly for Tuition Fees. These, which are typically up to £9,535 for this year's starters, can be paid for you by a loan from the Student Loans Company. Over a three-year course, the combined loan for tuition, plus the maintenance loan for living costs, can be over £60,000, but what counts is what you repay...

• You should only start repaying in the April after you leave or finish your course. So if you finish in summer 2028, that's likely to be April 2029, nine months after you leave (if you withdraw from the course earlier, you'd start repaying in the first relevant April afterwards).

• You repay 9% of anything you earn over, currently, £25,000 a year before tax. Earn less and you don’t pay, and the more you earn, the more you repay each month. The repayment threshold is supposed to rise with RPI inflation from 2027 (though see point 5).

• Any remaining balance is wiped 40 years after the April you were first due to repay, whether you’ve paid a penny or not. This Plan 5 wipe-off date is substantially longer than most previous Plans, which were typically 30 years. This means many will be repaying their student loans for the substantial majority of their working lives.

• There’s little worry of debt collectors as for most it’s repaid via their employer's payroll. In other words, it’s taken off what you earn before you get the money, just like income tax is. Those who become self employed will be liable to pay it as part of your annual tax return.

• Plan 5 student loans are not reported on your credit file, so it doesn't hit credit scoring for mortgages or other borrowing. Yet as they reduce your disposable income, they do hit lender's affordability assessments - which can limit the amount you can borrow and whether you'll be accepted.

Overall the way it works, if you take the loan, some very low earning graduates will pay far less than the price tag, some higher earning graduates very substantially more.

2. There is an implied amount most parents are meant to contribute

You are eligible for a 'maintenance loan' to help with living costs. Yet for most under-25s, even though you are old enough to vote, get married and fight for our country, your living loan is dependent on household residual income, which for most is a proxy for ‘parental income’ (if your parents are no longer together, it is assessed on the income of the household you spend most time in – including, justly or not, your parent’s partner).

The loan received starts to be reduced from a family income of just £25,000 upwards, until very roughly around £65,000 (it depends whether you live at or away from home and whether in London) where it’s roughly halved. This missing amount is effectively an unsaid expectation of a parental contribution (though it's not enforceable) – as the only reason you get less is because your family earns more.

For September 2025 starters, the FULL annual maintenance loan in the first academic year (2025/26) is...

• £8,877 if living at home.

• £10,544 away from home.

• £13,762 away from home in London.

To work out the parental contribution, just subtract the loan you’re being given from that. Or far easier, use the Parental Contribution Calculator which does it all for you (for those who won't go for a few years use the How much should I save for my child's Uni calc).

Of course, some parents won’t be able to afford to fill that gap – and they can't be forced to pay. Yet at least knowing there is a gap helps you understand what level of funds are needed. And it’s important students and parents have this conversation sooner so you can discuss options to plug the hole.

While the media and those who've left University often focus on the size of the loans, the practical complaints from existing students tend to focus on the living loan – many find even the maximum loan isn’t big enough. So when deciding where to study, look at all the costs, transport, and accommodation (will you get into halls?), as that’s a key part of your decision.

This situation has worsened in recent years for two reasons...

a) For year after year the maximum English living loan was increased by less than inflation, eroding its effective value (something I wrote to the last Tory and current Labour Chancellors about to try to get change on). Last year it was increased with inflation, which is an improvement, but it is nowhere near catching up to where it was.

b) The family income threshold at which English maintenance loans start to get reduced has been frozen in cash terms at £25,000/yr since the 2008/2009 academic year. Yet in that time we have had roughly 70% (CPI) inflation. So much so, now £25,000 isn't far from minimum wage for one earner, but this is a FAMILY income assessment. It means far far fewer students get the full living loan.

Perversely this means that those from lower income backgrounds often leave University with the largest amount of loans.

3. The amount owed isn't relevant day to day – its paid more like a 9% additional tax

This bit is really important to understand. So, take your time to digest it...

Just like tax, the loan is repaid through the payroll each month, in proportion to what you earn. What you repay each month after University is 9% of everything earned above £25,000. To emphasise this point, for a graduate who earns (for the sake of easy numbers) £35,000:

• Owe £20,000 and you repay £900 a year.

• Owe £60,000 and you repay £900 a year.

• In fact, let’s be ridiculous and pretend tuition fees have been upped to £1m a year, so you owe £3m+, you still ONLY repay £900 a year.

So how much you owe DOESN’T impact what you repay each month or each year. This includes both the original amount you borrowed, and any interest added (which increases what you owe).

What you owe (borrowing plus interest) does matter when it comes to whether you’ll clear it within 40 years before it wipes – and therefore the TOTAL you’ll repay

So while what you owe doesn't change you day to day or often year to year repayments, it is central to dictating when you stop repaying.

The latest Government predictions show that 56% of full-time higher education borrowers starting in the academic years 2023/24 and 2024/25 are expected to repay in full within 40 years, leaving most of the remaining 44% paying off their loan for the full 40 years.

- Won't clear the loan within 40 years: Those with bigger loans and / or low to middle graduate earnings, will effectively feel like this is a (hefty) additional 9% tax for 40 years. For this group any extra borrowing or interest won't actually change things as your repayments are fixed.

- Will likely clear the loan within 40 years: Those with smaller loans and / or middle to higher graduate earnings will repay this like a 9% tax, but one that could stop significantly earlier. For this group the amount of borrowing and interest has a practical impact (less borrowed, less interest means repay quicker).

In simple terms for those who take the loans, while repaying , things look a bit like this...

This excludes National Insurance & any Pension Contributions, and of course could change in the future.

This isn't cheap, far from it, but it does feel more like a burden of additional tax than a debt for some. Frankly it would be easier to communicate if we called it a graduate contribution system - which reflects more how it operates while you have it (though with Plan 5 as more will repay in full due to the extended repayment term, the push for that is less pressing than it was).

Another way to look at it though is the more you earn, the more you repay each month. Financially at least, I used to say for those who took student loans the structure was as a ‘no win, no fee education, but the costs can be large if you do win’ though...

I think that is now gone to an extent, as the repayment threshold for Plan 5 loans isn’t far above minimum wage, so you start repaying even when your salary isn't at a graduate premium. Thus for many even if there is no financial win, there is a fee.

PS. While I use 'it feels like a tax' to explain how it works while repaying it. It's important to understand it isn't a tax. There's a number of reasons the State does it as a contract not a tax, the most important two being... a) You don't have to take the loan b) Move abroad and you are still contractually obliged to pay it back.

How do you know if you'll be one who clears the loan or not?

One of the great frustrations with the system is this is virtually impossible to know. I've seen lots of places try and do it based on salary, but this is about salary over 40 years, so earnings trajectory, relative to inflation, is crucial too.

I know you’ll hate that answer, so the best I can do is the prompt below I’ve drafted for you to cut and paste into a large-language AI (eg ChatGPT or Gemini) where you can add your specifics.

It's best to use this play with different scenarios, don't see it as an exact answer.

WARNING: It’s AI, it isn’t perfect and can hallucinate. The prompt covers the core info, and it worked on sense-check options I tried on various AIs (do try and put it in the more analytical complex, deeper thinking modes). I hope it gives you a rough idea, but do a sniff test to see if it seems right. Hopefully you’ve a reasonable idea where your chosen career may fit on the graduate earning level.

4. Plan 5 student loans interest is set at inflation, so are said to have no ‘real’ cost to them (though there's a but) - and some won't pay all the interest anyway.

Student loan interest is set based on the Retail Prices Index (RPI) rate of inflation – a measure of how quickly prices of all things are rising. The interest for the academic year is set each 1 September using the RPI for the preceding March; as the March 2025 RPI was 3.2%, that is what the 2025/26 academic year RPI rate is locked in as.

The Plan 5 interest rate has been reduced compared to its predecessor Plan 2 - so it's important not to confuse the two as Plan 2 is what many people and news programmes discuss.

- Plan 5 interest: Set at 'RPI inflation'
- Plan 2 interest: Set at 'RPI inflation + up to 3%'.

In simple terms, conceptually, as your interest is set at just inflation, the interest is what economists would say is at 'no real cost'.

To explain the philosophy behind this... imagine if you borrowed enough to pay for 100 shopping trolleys’ worth of goods at today’s prices. The most you'd ever have to repay is roughly whatever it costs to pay for the same 100 shopping trolleys’ worth of goods in the future – not more, as the interest only increases at the same rate as prices.

So even though you may in cash terms repay say £130 for £100 worth of borrowing, that £130 has been devalued in the meantime as wages and costs have all gone up very roughly in proportion, so it's only worth what £100 is now. This is what no ‘real’ cost means in economics terms.

And that's all good in theory. Unfortunately in practice sadly the RPI rate used for student loans is the higher rate of inflation, the one the Government usually uses when we pay it, rather than the lower CPI rate it usually uses when it pays us. This pushes the cost up. Typically RPI is 0.5% to 1% higher than CPI, so you could argue that difference is a 'real cost' to the loan (I asked the AI calc above to factor that in).

Interest being added doesn't automatically mean everyone repays it...

Perversely with student loans, the interest added to your loan is not always the same as the interest you repay. This all harks back to the fact that some won't clear the loan in full within the 40 years. If so then by definition you won't pay all the interest added to your loan.

To make this easier to understand, let me reduce this to absurdity. Some very low earners who never earn over the threshold will never repay anything, never mind the interest. Some who earn (or borrowed) more will pay enough to repay what they borrowed in cash terms, but not pay any more, so don't pay any interest. And some will pay some interest, not all the interest added.

Only those with lower borrowing and/or the higher end of graduate earnings, will repay all they borrowed in full within the 40 years, and therefore for them the interest rate added is the same as the interest rate paid. The AI calculator above will give you an estimate of the effective interest rate cost.

So while it's petrifying to see the interest growing on your statement (and when you leave Uni this will probably bother you) remember what you pay each year solely depends on what you earn. Those on lower incomes at least, don’t panic if the interest is accruing, it may be irrelevant.

Watch Martin answer: "Should I pay my daughter's Plan 5 tuition fees so she doesn't need a loan?

From The Martin Lewis Money Show Live on Tuesday 30 September 2025 courtesy of ITV. All rights reserved.

The answer may seem strange, as the Plan 5 loans are costly, but here I am answering purely on the financial maths (rather than any wider societal or political perspectives which I'll leave to you).

At the time of writing, the interest rate on Plan 5 student loans is lower than the interest rate most can earn in top savings, so you don't have to rush into a decision. You could put the money in top savings, to more than offset the interest cost of the student loan, while you see how your child's earning potential grows.

Then if things change (eg savings rates no longer beat the student loan rate), or it becomes clear that they're likely someone who'll pay the full interest, then use the savings to pay it off. Though do first be mindful to think through the opportunity cost of using that money, it may be better in some cases to help them build a deposit for a mortgage (thus reducing mortgage debt) or to stop them needing a car loan.

If it looks like they won't repay in full, then it strengthens the argument for using the money to help them in other ways (the AI calc prompt above will help you get the big picture of possible outcome).

The reason I write it this way is because if you choose to voluntarily not to have a loan for a specific year, you can't after that year is closed out go back on it - it's a done deal, so you have to err on the side of caution. Similar is true for those who voluntarily overpay their loans after they've taken it, once done it's usually done.

PS While all else being equal, many will pay more on this system than those on the earlier Plan 2 loans for English students (because you start repaying at a lower threshold and repay for longer), many others, especially those who repay in full and do it relatively quickly, will pay less, due to the lower interest.

5. The system can and has changed

Student loan terms should be locked into law, so only an Act of Parliament can negatively change them once you’ve started uni – I've been campaigning for that for well over a decade - but they're not! (Though a current Treasury Committee investigation is thankfully asking just those questions).

We've seen successive governments renege on promised uprating of the repayment threshold for prior loan Plans (i.e the current £25,000 threshold for Plan 5 which is scheduled to be uprated with RPI inflation from 2027). And indeed having seen that I think unless there is evidence to the contrary, the only safe thing to do is view the Plan 5 repayment threshold as ‘variable’ – meaning it can be changed at the whim of administrations.

You can take a tiny bit of reassurance that mostly for huge radical systemic changes, governments only do it for new starters (as they did with Plan 5) rather than for those already signed up to agreements. That means the most likely negative outcome is to expect the loan terms to be subtly and gradually chipped away and degraded (though there's always a hope a future government may improve things too).

Even so, the last of my need-to-knows has to be the caveat of ‘unless things change’.

There are specific changes planned that may impact those at University now and starting soon...

In January 2027 the government plans to introduce a new ‘Lifelong Learning Entitlement’ – this in effect means the type of finance students on full-time undergraduate-type courses get will be available for single modules too, and you will have an amount of finance you can get until age 60.

In reality this isn't likely to have much impact on those starting University now, as they'll stay on your Plan 5 terms (though the fact you've had this funding may be counted as using up some of your future LLE entitlement). For those starting University in future years, funding is likely to be done under the umbrella of the LLE, but as far as we can tell, so far, it will still work in a similar way.