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Managing my money for young adults
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6 Student loans – accumulating and repaying the debt

This photograph shows students at university. There are pound signs over the top of the image.
Figure 3

Student loans do not have to be repaid in the same way that conventional loans from a bank have to be repaid. However, they do attract an interest charge from the date the money is advanced.

The scale of the loans involved, and the outstanding debt accumulated even during just a three-year degree course can be substantial.

As an example, a student living away from home in London, who takes out the maximum annual loans for tuition fees and maintenance would borrow £9250 and £13,022 respectively for the 2023/24 academic year. Over a three-year period their accumulated debt (including interest) would be close to £70,000.

Of course, adding interest to the original sum of the loan causes the total accumulated debt to build up steadily.

The crucial matter, though, is not how much you have to borrow to finance your education but how much you will end up paying back.

For those going to university from September 2012 onwards you only start to repay the loans:

  • from the first April after you’ve left your course (or, if you study part-time, from the April four years after your course started)
  • when you have an income level above the defined threshold for repayment. In 2023 this threshold was £25,000 in England, £27,660 in Scotland, £27,295 in Wales and £22,015 in Northern Ireland.

The rate you repay the loans is then set at a percentage of your marginal income above the defined threshold – with the current marginal rate being 9%.

So if your income does not exceed the threshold level then you will not have to make any repayments of your debt. This means that repayments of student loans are really more like a tax than conventional debt repayments for which no consideration of your income level is made.

Note that student debts are written off if they are not repaid within specified periods. This period is either 25, 30 or 40 years depending on which student loan scheme you are on.

The exact terms – including the interest rates charged – vary across the UK and across the various schemes that have been in place since student loans were introduced. To see the exact details that apply to you follow the link below.

Student finance for undergraduates [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]

Now watch this video where Martin Lewis explains further how student loans end up being, in effect, a graduate tax with only a minority of people forecast to end up repaying the full amount of money borrowed, including the interest accumulated.

Download this video clip.Video player: mmmft_1_video_week4_lewis_studentloans.mp4
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Important questions about student loans

Let’s look at a couple of questions that are often raised about student loans.

If you expect to be earning above the threshold level during your working life could there be a case for simply paying off your student loan debt as quickly as possible?

This would only apply if you were certain that you would repay your student loans (plus interest) prior to the point where the remaining debt is written off. Even then you are taking a risk as a future government could write off student debts immediately – so if you repay early you would miss out. Additionally if you are replacing your student loan debt with new borrowed money you need to check that the interest rate on the new debt is lower than on your student loan debt. For most people repaying early would not be a wise move.

Does your student loan debt affect your ability to borrow other money, such as a mortgage for property purchase?

The debt will not be taken into account when determining your credit rating. Repayments on student debts are unique in being linked to your ability to repay, and this means that student loan debt is disregarded in the computation of your credit rating. However, when you apply for other loans or a mortgage your student loan commitments will be taken into account when the lender considers if you can afford to repay the money you want to borrow.