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’re not just repaying the borrowed amount — you’re also paying interest.
For many graduates, understanding how interest works, what the current rates are, and 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’ll 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’re unsure which student loan plan type you’re on, check our student loan plan type guide to identify your repayment category instantly.
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 4, or Postgraduate
- Retail Price Index (RPI) – a measure of inflation
- Your Income Level – some plans have variable interest based on earnings
- Government Policy Changes – thresholds, freezes, or 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 threshold, but 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’re 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’re 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 type, and 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.
