Student loan interest rises to 4.1% - what it means for your money

Student loan interest is going up to 4.1% from September 1.

Last year the rate was 3.2 per cent.

The Department for Education confirmed the change this week, with the new rate running until August 31, 2027.

Interest is charged daily and added to the balance every month, so the amount you owe can grow even while you are repaying it.

But the rise does not automatically mean more money leaves your wages. Repayments are worked out from what you earn, not from what you owe.

Will your repayments go up?

Not because of this.

You repay a percentage of what you earn above a set threshold. The interest rate changes the size of the debt. It does not change the monthly deduction.

Two people on the same salary repay the same amount, even if one owes £10,000 and the other owes £100,000.

And if your income drops below the threshold, repayments stop until you earn above it again.

What you will pay on each plan

• Plan 1 - courses started before 1 September 2012. Interest 4.1%. Repay 9% of income above £26,900, rising to £28,005 from 6 April 6 2027.
• Plan 2 - most undergraduate courses in England and Wales started between 2012 and 2023. Interest normally 4.1% to 7.1% depending on earnings, capped at 6% this year. Repay 9% above £29,385.
• Plan 3 - postgraduate loans. Interest would be 7.1%, capped at 6%. Repay 6% above £21,000.
• Plan 4 — Scottish students. Interest 4.1%. Repay 9% above £33,795.
• Plan 5 — courses started from 1 August 2023. Interest 4.1%. Repay 9% above £25,000. First repayments began in April 2026.

Why is interest capped at 6%?

The government announced the cap on 7 April before the RPI figure was known.

Baroness Smith of Malvern, the Minister for Skills, said it would protect borrowers from inflation linked to the situation in the Middle East.

Without it, the highest earners on Plan 2 and postgraduate loans would be paying 7.1%. So for some borrowers the rate is falling rather than rising.

The change that will cost you more

The Plan 2 threshold is £29,385 and it is frozen at that level from April 2027 until April 2030. The freeze was announced at the Autumn Budget in 2025.

Wages generally rise while the threshold stays put. That means a bit more of your income sits above it each year, so Plan 2 borrowers repay slightly more every year without the rate or the percentage changing at all.

Could you be paying more than you owe?

This is the part to act on.

If you are close to clearing your loan, deductions taken through your wages can carry on past the point where the debt is settled.

The government advises anyone within four to 23 months of finishing repayment to switch to Direct Debit, because that stops payments once the balance hits zero.

If you think too much has already gone out, check your repayment account and contact the Student Loans Company. You may be owed a refund.

What should you do now?

For most people, nothing. The rate rise on its own needs no action.

Check which plan you are on, because the rules differ and a lot of people are not sure. Make sure the Student Loans Company has your current contact details.

And if you are near the end of your loan, look at that Direct Debit option.

Worried about other debts?

A student loan behaves differently from other borrowing. Repayments stop if your income falls, and the balance is eventually written off.

That is not true of credit cards, overdrafts, catalogue or BNPL debt, or arrears on rent and council tax. Those are the ones to deal with first.

If money is tight, speak to us. We’ll go through what is coming in, what is going out and which bills need paying first.