Student loans: how they really work

Lesson 4 of 11 in our free Good Debt vs Bad Debt guide: a 5-minute money game with the key points below.

Shown for England. Some rules here are different in Scotland, Wales and Northern Ireland: the lesson shows your nation's version.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Good Debt vs Bad Debt is free for everyone.

Questions you'll answer

Illustration: Mo, from England, is on Plan 5 and earns £30,000 a year. Roughly how much does he repay each month?

Mo's balance grows from interest while his income is low. What does that change about his monthly repayments?

Repayments taken through payroll based on income → Student loan. Your employer deducts it, like tax.
Fixed monthly payment whatever you earn → Normal loan. Normal loans don't care if your income drops.
Unpaid balance written off after a set number of years → Student loan. Plan 5: 40 years. Plan 2: 30 years.
Missed payments go on your credit file → Normal loan. Student loans from the Student Loans Company don't show on your credit file.
Fact: “Plan 2 borrowers repay 9% of income above £29,385.” — That's the 2026/27 Plan 2 threshold. What's left is written off after 30 years.
Myth: “Student loan repayments are ignored by mortgage lenders.” — They don't show on your credit file, but lenders count the monthly repayments as outgoings.
Myth: “Paying extra off a student loan is always the smartest use of spare cash.” — Not always: many people won't repay in full before write-off. A buffer and expensive debts usually come first. MoneyHelper explains the trade-offs.