Student loans exist on both sides of the Atlantic, but the UK system has changed a lot in the last few years, and the differences matter more than ever.
In the US, student loans often behave like a traditional debt: you borrow a set amount, you owe it back (plus interest), and repayment depends on the plan you choose.
In the UK, student loans are closer to a hybrid between a loan and a payroll-based graduate contribution – and since 2023, England’s system has shifted again with Plan 5, a new repayment structure that can keep borrowers paying for up to 40 years (suddenly RAP’s 30 years doesn’t seem so bad).
Here’s how UK student loans work today, how they compare to US loans, and what the US could learn (and what it should avoid).
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UK “Student Loans” Aren’t One System
When Americans say “UK student loans,” they often mean “the UK government loan program.” But repayment rules differ by plan, and plans depend on:
- Where you live in the UK (England vs. Scotland vs. Wales vs. Northern Ireland)
- When you started your course
- Whether the loan is undergraduate or postgraduate
This article focuses primarily on England, because England’s rules drive most of the UK-wide debate and the biggest recent changes.
Getting a UK Student Loan and The Costs of Tuition
The UK has two different types of student loans:
- Tuition Fee Loan: This is the loan that covers your tuition
- Maintenance Loan: This is the loan that you can get that covers your living expenses
This is different than in the United States, where all of our loans essentially cover both tuition and living expenses if needed, plus anything else that a student wants to spend the money on. The UK government caps the maximum amount that students pay for tuition each year.
For years, England’s undergraduate tuition fee cap was £9,250 – but it increased for the first time in a long stretch. In 2026-27, the cap increased to £9,790 (which, as of 2026, was approximately USD$13,200).
As for that loan? The UK will lend up to £9,790 each year as well, so you can always get a loan to cover your full tuition each year if you need it. And even if you don’t get a loan, that’s still the maximum amount you’ll pay in tuition. It makes for much easier planning and budgeting.
The US federal government also has caps for what they will lend, but not what colleges can charge.
As for that maintenance loan, there are caps on the amount they lend, which varies based on your living situation. Here are the UK maintenance loan caps for the 2026-27 academic school year:
- Living with your parents — Up to £9,118
- Living away from your parents, outside London — Up to £10,830
- Living away from your parents, in London — Up to £14,135
- You spend a year of a UK course studying abroad — Up to £12,403
- If you’re 60 or over on the first day of the first academic year of your course — Up to £4,582
That means, if you take on loans for tuition and for living expenses, and go to school for 4 years while living away from your parents in expensive London, the most you’ll ever be in debt is £95,700 (about USD$129,000 in 2026). And while that may seem like a lot (it is), it is the absolute maximum. That differs from here in the United States, where students can borrow just about any amount they want, and spend it as they wish.
The average amount of student loan debt in the UK for students who began school in 2024 is forecasted to be £53,000 (roughly $71,472). For comparison, the average student loan debt for the 2024 graduation year is estimated to be $38,370. While that is not a perfect comparison, it’s still surprising to learn that UK students have nearly double the student loan debt than those in the US, on average.
Related: How Student Loans Work: Applying, Borrowing, And Paying Back
Paying Back A UK Student Loan
Just like in the United States, you must pay back your student loans. However, the UK has an interesting repayment process that makes it easier for borrowers to get started without drowning in student loan debt.
First, you only make payments on your student loan if your income is over a certain threshold, depending on which Loan Plan you are on (which varies based on which part of the UK you are in) and your payment frequency.
Students who started undergraduate courses in England from 2023 onward are on “Plan 5.” Plan 2 is the main option that applies to many borrowers who started between 2012 and 2023.
Plan 5 was created to reduce government subsidy and increase long-run repayment. The UK government has repeatedly frozen (or constrained) the Plan 2 threshold instead of raising it with earnings – meaning more graduates repay more each year due to “fiscal drag.”
|
Plan Type |
Yearly Threshold |
Monthly Threshold |
Weekly Threshold |
|---|---|---|---|
|
Plan 1 |
£26,900 |
£2,241 |
£517 |
|
Plan 2 |
£29,385 |
£2,449 |
£565 |
|
Plan 4 |
£33,795 |
£2,816 |
£650 |
|
Plan 5 |
£25,000 |
£2,083 |
£480 |
|
Postgraduate Loan |
£21,000 |
£1,750 |
£403 |
You have to pay a percentage of any income above those thresholds to repay your student loans. You’ll repay 6% of your income over the threshold if you’re on a Postgraduate Loan plan, and 9% of your above-threshold income if you’re on any other Plan.
Also, just like in the United States, you’ll have to pay interest on UK student loans. How much interest you’re charged depends on which plan you’re on. As of 2024, the interest rates were:
|
Plan Type |
Interest Rate |
|---|---|
|
Plan 1 |
6.25% |
|
Plan 2 |
7.60% |
|
Plan 4 |
6.25% |
|
Plan 5 |
7.60% |
|
Postgraduate Loan |
7.60% |
The interest rate is tied to the rate of inflation, so it can vary over time.
The average student loan payment in the England is £85 per month (about $108). While the average student loan payment in the US is $503. This is where the affordability issue comes in for the US.
Plus, in this income-based repayment system, the loans will be canceled under the following scenarios, even if they aren’t fully repaid:
- After 30 years
- If the borrower dies or becomes disabled
So, unlike in the United States, where you will have your loans forever if you can’t repay them, the UK system discharges them at 30 years in Plan 2, but 40 years in Plan 5.
Another interesting feature of UK student loan repayment is that it is handled like payroll taxes once you’re employed. Since all of the loans are handled by the government, once you’re working, your repayment amount is taken out of your paycheck with your taxes. So, you never need to worry about it unless you work abroad.
There are private student loan companies in the UK, but those loans are not given any special treatment, and are treated just as any other personal loan. The payments are not income based or written off after any set amount of time.
Related: How To Pay For College: The Best Order Of Operations
Takeaways Here For The United States
Despite the fact that loans are actually higher in the UK, the monthly payments are much lower and then discharged after 30 or 40 years. It’s an interesting system that if implemented here would provide a lot of relief to borrowers.
The fact that we have a thriving private student loan industry here makes things a little bit more complicated, but starting with changes to federal loans would be a good start. Payroll-based collection removes the complexity of servicers, missed bills, and delinquency for many borrowers.
Repayments are triggered by income and scale with earnings – so payments aren’t “the same bill” whether you earn $45,000 or $145,000.
FAQs
What is Plan 5 student loan in the UK?
Plan 5 is the student loan plan for students in England who started university from September 2023 onward. Borrowers repay 9% of income above £25,000, interest is tied to inflation (RPI), and any remaining balance is written off after 40 years.
Are UK student loans written off after 30 years?
No. Plan 2 loans are typically written off after 30 years. However, Plan 5 loans are written off after 40 years. The write-off period depends on which repayment plan you are on.
Do UK graduates repay more than US graduates?
It depends on income and career length. UK graduates often have higher total loan balances, but repayments are income-based and collected through payroll. In the US, repayment depends on loan type and plan, and many borrowers pay fixed monthly amounts unless enrolled in an income-driven plan.
Is the UK student loan system better than the US loan system?
The UK system offers automatic payroll deductions and income-based repayment for all borrowers. However, Plan 5 extends repayment to 40 years, meaning many graduates may pay for most of their working lives. Whether it is “better” depends on income level, career path, and total lifetime repayment.
What are your thoughts on the UK student loan system, and what we could do better here in the United States?
Editor: Ashley Barnett
Reviewed by: Robert Farrington
The post How Student Loans Are Different In The UK vs. The US appeared first on The College Investor.
