The Student Loan Dilemma
The UK student loan book is the second-largest item on the public balance sheet after the national debt. For roughly half of graduates the loan functions as a 30-year graduate tax, written off rather than repaid. This page lays out the numbers honestly: what's owed, by whom, who actually pays back, and what the system costs the state.
Why this is a dilemma, not a problem
For roughly half of graduates, “repaying their loan” really means making 9% deductions above a threshold for 30 (Plan 2) or 40 (Plan 5) years until the balance is written off. The sticker debt — £44,940 in 2022/23 — rarely gets paid in full. The state covers the difference.
That makes the loan act like a graduate tax on lower-earning degrees, with the cost falling on general taxation. Universities collect their fees up front from the SLC regardless of whether graduates ever earn enough to repay — so the system has no financial brake on courses with weak graduate-earnings outcomes.
Plan 5 (2023+) tries to reduce the public cost by extending repayment from 30 to 40 years. That shifts the burden onto lower-earning graduates (who pay 10 extra years of deductions) and lightens it on higher earners (no interest premium). Whether that's a fairer settlement or a regressive shift depends on which graduates you focus on.
Plan 1 vs Plan 2 vs Plan 5
| Plan 1 | Plan 2 | Plan 5 | |
|---|---|---|---|
| Cohort | Pre-2012 (England + 2012 Scotland/NI) | Sep 2012 to Aug 2023 entrants in England + Wales | Aug 2023 onwards (England); 2024 onwards (Wales) |
| Repayment threshold (2024-25) | £24,990 | £27,295 | £25,000 |
| Rate above threshold | 9% | 9% | 9% |
| Interest | Lower of RPI or Bank Rate + 1% | RPI to RPI + 3% on a sliding scale by income; capped at prevailing market rate | RPI only (no +3% premium) |
| Write-off | 25 years from first April after course end, or age 65 | 30 years after April following graduation | 40 years after April following graduation |
| Don't fully repay (RAB) | 7% | 56% | 17% |
| Typical debt at graduation | £11,000 | £44,940 | £45,600 |
| Notes | Cheapest plan. Most balances now small and approaching write-off age. | The headline-grabbing plan: about 56% of borrowers never fully repay. Interest accrues from the day the first instalment is paid out. For lower-earning graduates, repayments rarely cover the interest, so the nominal balance grows. | Designed to push the RAB charge down by stretching the repayment window. Lower earners pay more in total (10 extra years of deductions); higher earners pay less (no interest premium). Effectively shifts cost from the state onto lower-paid graduates. |
How the loan book has actually grown
SLC Annual Statistical Release snapshots back to 2008, then the OBR's central forecast to 2050. The book grew 10× in 16 years (£22bn → £236bn) and is forecast to roughly double again by 2050 even with Plan 5 in force: new graduates are added faster than older balances get written off.
New lending vs repayments collected
Each year SLC lends roughly £21bn to new students and collects roughly £4.5bn back from past ones. The deposit/withdrawal asymmetry is why the outstanding balance keeps rising, and why the 56% RAB charge isn't a one-off accounting estimate, it's a real annual subsidy.
The estimates keep getting worse
When Plan 2 launched in 2012, the Treasury assumed ~35% of new lending would never come back. Successive reviews have pushed that to 56%, and the upward revisions are why the “graduate tax” framing has become the consensus rather than the contrarian view. Plan 5 is designed to push the figure back to ~17% by stretching repayment from 30 to 40 years.
| Year | Plan | RAB % | Source |
|---|---|---|---|
| 2013 | Plan 2 | 35% | DfE original estimate |
| 2016 | Plan 2 | 45% | DfE / IFS |
| 2019 | Plan 2 | 47% | DfE / IFS |
| 2021 | Plan 2 | 53% | DfE / IFS |
| 2022 | Plan 2 | 56% | Post-Aug 2022 review (current) |
| 2023 | Plan 5 | 17% | DfE projection for new borrowers |
The silent tax trap: when graduates actually start paying
Most graduates don't notice the 9% deduction for the first few years because their starting salary is below the repayment threshold. The trap closes silently: a pay rise crosses the threshold, the deduction kicks in, and effectively becomes a permanent tax on the marginal pound until either the balance clears or the 30/40-year clock runs out.
The plan thresholds are nominal; in real terms they've barely moved since 2018, while graduate salaries have continued to rise. So each year a slightly larger share of the cohort crosses into the “tax kicks in” zone, even for cohorts who graduated below the threshold.
Subject-by-subject: who's paying, who isn't
DfE LEO median earnings 1 and 5 years after graduation, against the Plan 5 threshold (£25,000) (the threshold that applies to current undergraduates). Subjects below the line at year 1 collect zero from those graduates for the early career. Subjects below at year 5 are where the silent-tax framing bites: graduates either repay slowly or never fully repay.
| Subject group | Group | Median, yr 1 | Median, yr 5 | Status at yr 1 | Status at yr 5 |
|---|---|---|---|---|---|
| Medicine & dentistry | Health | £32,000 | £47,000 | Paying £53/mo | Paying £165/mo |
| Veterinary sciences | Health | £31,000 | £38,000 | Paying £45/mo | Paying £98/mo |
| Economics | Social Sciences | £28,000 | £40,000 | Paying £23/mo | Paying £113/mo |
| Engineering & technology | STEM | £28,000 | £36,000 | Paying £23/mo | Paying £83/mo |
| Computing | STEM | £27,500 | £38,000 | Paying £19/mo | Paying £98/mo |
| Mathematical sciences | STEM | £26,500 | £34,500 | Paying £11/mo | Paying £71/mo |
| Nursing & midwifery | Health | £25,500 | £30,000 | Paying £4/mo | Paying £38/mo |
| Law | Social Sciences | £24,500 | £32,000 | Below threshold | Paying £53/mo |
| Subjects allied to medicine | Health | £23,000 | £28,500 | Below threshold | Paying £26/mo |
| Business & management | Social Sciences | £22,500 | £29,500 | Below threshold | Paying £34/mo |
| Physical sciences | STEM | £22,500 | £28,500 | Below threshold | Paying £26/mo |
| Architecture, building | STEM | £22,000 | £28,000 | Below threshold | Paying £23/mo |
| Agriculture & related | STEM | £21,500 | £26,500 | Below threshold | Paying £11/mo |
| Education & teaching | Other | £21,500 | £26,500 | Below threshold | Paying £11/mo |
| Languages | Humanities | £21,500 | £27,500 | Below threshold | Paying £19/mo |
| Geography & environmental | STEM | £21,000 | £26,000 | Below threshold | Paying £8/mo |
| Communication & media | Other | £21,000 | £26,500 | Below threshold | Paying £11/mo |
| History & archaeology | Humanities | £21,000 | £26,500 | Below threshold | Paying £11/mo |
| Philosophy & religious | Humanities | £21,000 | £26,500 | Below threshold | Paying £11/mo |
| Biological sciences | STEM | £21,000 | £26,500 | Below threshold | Paying £11/mo |
| Social sciences | Social Sciences | £21,000 | £26,500 | Below threshold | Paying £11/mo |
| Combined / general | Other | £21,000 | £25,500 | Below threshold | Paying £4/mo |
| Sociology, social policy | Social Sciences | £20,500 | £25,500 | Below threshold | Paying £4/mo |
| English & literature | Humanities | £20,500 | £25,500 | Below threshold | Paying £4/mo |
| Psychology | Social Sciences | £20,500 | £25,000 | Below threshold | Below threshold |
| Sport & exercise | Other | £20,000 | £24,500 | Below threshold | Below threshold |
| Creative arts & design | Arts | £19,000 | £23,500 | Below threshold | Below threshold |
| Performing arts | Arts | £18,500 | £22,500 | Below threshold | Below threshold |
Pure income-tax-style deduction: 9% of every £ above £25,000. Source: DfE LEO Tax-Year 2021-22 release, pooled across all UK universities. Individual universities can sit well above or below the subject median (see University ROI).
How much interest you're actually being charged
Student loan interest is the part of the system that's least visible to borrowers because it's never deducted from the payslip, it just adds to the balance. For Plan 2 graduates on median salaries it's typically larger than the 9% repayment, so the balance keeps growing for the early career. The simulator below shows the per-year split and the lifetime total interest you'd be charged.
RPI / Bank Rate + 1%, whichever is lower. Effective rate has tracked rates.
RPI + up to 3% on a sliding scale by income. The highest typical rate of the three.
Lowest rate of the three plans. RPI-only since the Aug 2023 reset.
For comparison: the average 5-year fixed UK mortgage is around 4-5%; the typical credit card rate is ~22%. Plan 2 is closer to a mortgage; Plan 5 is closer to inflation-only.
Your repayment scenario
Adjust the inputs to see how much a graduate on a given salary trajectory actually pays back, how much of that is interest, and how much gets written off. The per-year bar chart on the right shows exactly when interest charged outpaces the 9% repayment.
Years where the red bar exceeds the blue bar are years the balance grows even though you're paying. For Plan 2 graduates on median salaries this is most of the early career.
Related
- Who takes them out, who repays: demographics deep-dive →
- Repayment outlook by university (107 unis ranked by writedown) →
- International comparison: UK vs Australia / USA / Germany / Netherlands / Canada →
- Compare two graduates side-by-side (interactive) →
- Who legislates the system: MP educational backgrounds →
- Where the fees go: VC pay + sector reserves →
- University ROI by course →
- Fiscal dashboard (state subsidies overall) →
- National finances P&L →
- Demographic + fiscal projections to 2040 →
Sources
- SLC Annual Statistical Release 2023-24 (March 2024 snapshot)
- IFS “Student loans in England” (2022 + 2024 follow-up)
- OBR Fiscal Sustainability Report 2024 (loan-book trajectory)
- DfE LEO graduate outcomes
Phase 1 page: figures hardcoded from the above. SLC ingestion pipeline planned to wire this to nightly-refreshed DB data.