How UK Student Loan Interest Works in 2025 – Rates, Calculations & Money-Saving Tips

If you’ve taken out a student loan in the United Kingdom, you are not just repaying the borrowed amount — you are also paying interest.
For many graduates, understanding how interest works, what the current rates areand how to minimise the total cost can be the difference between clearing their balance faster or staying in debt for decades.

In this guide, we will break down:

How UK student loan interest is set
The rates for 2025, based on your plan type and income
How interest affects your monthly repayments
Tools to calculate your total loan cost
Proven ways to reduce what you pay overall

If you are unsure which student loan plan type you are on, check our student loan plan type guide to identify your repayment category instantly.

Table of Contents

What Determines UK Student Loan Interest Rates?

UK student loan interest rates are set by the Student Loans Company (SLC) and depend on:

Loan Plan Type – Plan 1, Plan 2, Plan 4or Postgraduate
Retail Price Index (RPI) – a measure of inflation
Your Income Level – some plans have variable interest based on earnings
Government Policy Changes – thresholds, freezesor caps

The rates change every September but can also be adjusted mid-year if inflation spikes.

UK Student Loan Interest Rates Table – 2025

Plan Type	Income Band	Interest Rate (2025)
Plan 1	All incomes	5.25%
Plan 2	£27,295 or less	6.25%
Plan 2	£27,296 – £49,130	6.25% to 9.25%
Plan 4 (Scotland)	All incomes	5.25%
Postgraduate	All incomes	7.25%

(Source: Gov.uk Student Loan Interest Rates)

How Interest is Calculated on UK Student Loans

Interest is calculated daily but added to your balance monthly.
Formula:

nginxCopyEditLoan Balance × (Interest Rate ÷ 365) = Daily Interest

Example:
If your balance is £30,000 and your interest rate is 6.25%, your daily interest is:

bashCopyEdit£30,000 × (0.0625 ÷ 365) ≈ £5.14/day

That’s ~£155/month in interest before you even start reducing your principal.

Interest by Student Loan Plan Type

Different plans work in different ways:

Plan 1 – Lower threshold, lower interest, quicker repayment if income is stable.
Plan 2 – Higher thresholdbut interest can be much higher for high earners.
Plan 4 – Similar to Plan 1 but for Scottish students.
Postgraduate Loan – Fixed rate, separate from undergrad loans.

To find your student loan plan type, visit our student loan plan type guide.

How Interest Affects Your Total Repayment

Interest can sometimes outpace your repayments if your income is near the threshold.
This means your total balance can increase even if you are making payments.
To see how this works for your loan, use the Student Loan Calculator to estimate your repayment timeline.

How to Check & Estimate Your Interest

You can:

Log into the SLC online portal
Use our Student Loan Calculator
Compare repayment options in our UK Student Loan Repayment Plans Guide

Tips to Reduce Student Loan Interest Over Time

Make occasional lump-sum payments – reduces balance faster
Pay while studying – any small payments help
Avoid unnecessary deferments – interest keeps adding up
Track your balance – so you are aware when interest spikes

Common Myths About Student Loan Interest in the UK

“Interest doesn’t matter because the loan gets written off” – Not true for high earners; you could still pay the full balance.
“Paying early is pointless” – In some cases, it saves thousands in interest.
“The rate never changes” – It’s linked to RPI, so it changes annually.

FAQs

Q1: What is the highest student loan interest rate in the UK in 2025?
A: For Plan 2 high earners, it’s up to 9.25%.

Q2: Can I pay off my loan early to save interest?
A: Yes, lump-sum payments reduce total interest paid.

Q3: Does interest keep adding if I’m not working?
A: Yes, unless your plan type has a specific suspension policy.

Q4: How do I know my plan type?
A: Check your loan documents or use our student loan plan type guide.

Q5: Is student loan interest tax-deductible in the UK?
A: No, unlike in some other countries.

Conclusion

Understanding UK student loan interest rates is key to managing your debt smartly.
By tracking your rate, knowing your plan typeand using calculators to estimate repayment, you can make informed decisions and possibly save thousands over the life of your loan.

For your exact repayment breakdown, try our Student Loan Calculator now.