How interest is calculated - Plan 2
Find out how interest is calculated and applied if you have a Plan 2 student loan, as well as previous interest rates.
Annual interest rates
The interest rate is set on 1 September using the Retail Price Index (RPI) figure from the previous March.
The Student Loans Company cannot change interest rates. Interest rates are set by the UK government and confirmed by the Department for Education.
How interest is applied
We add interest to your balance each month from the day we make your first payment to you, or to your university or college.
The amount of interest you’re charged while you’re studying is a set interest rate of the Retail Price Index (RPI) plus 3%.
We’ll continue to add interest after you leave or finish your course but the amount of interest you’re charged will now be a Variable Interest Rate (VIR) based on your annual income. This VIR is the RPI plus up to 3% (RPI+3%)
We’ll continue to charge you interest until your loan has been repaid in full or is written off or cancelled.
If you’re employed (PAYE)
We add interest to your loan every month. During the tax year, April to March, we apply the RPI rate of interest only. This is because we do not know your total annual income yet. We need to know your total annual income to check if you should be charged the VIR rate which is the RPI plus up to 3%.
We get your income details from HMRC after the end of each tax year. We’ll use this information to check the interest we charged and adjust your balance if needed.
If you’re self-employed or complete a Self Assessment tax return for another reason
We use the income you report on your Self Assessment tax return to work out your interest rate. We get this information from HMRC after the Self Assessment deadline.
We’ll charge interest at the RPI rate only until we get this information. This is because we do not know your total annual income yet. We need to know your total annual income to check if you should be charged the VIR rate which is the RPI plus up to 3%.
After we receive your income details from HMRC, we’ll:
- calculate your VIR based on your total income
- update your interest rate
- adjust your balance if needed
If you stop being self-employed and are employed only, we’ll use the income information we receive through PAYE instead.
If you’re unemployed
We’ll apply the RPI rate of interest every month whilst you’re unemployed.
If you become employed during the year, we’ll check your total annual income from the details HMRC give us after the end of the tax year. We’ll use this information to check the interest we charged and adjust your balance if needed.
If we do not know your annual income
We’ll apply the RPI rate of interest until we get this information.
When we get your income details from HMRC, we’ll check the interest we charged and adjust your balance if needed.
If you’re employed overseas
The repayment thresholds are different if you live overseas.
We’ll ask you to give us details of your gross annual income as part of your overseas assessment.
We use this information to:
- work out your monthly repayment amount
- calculate your interest rate
The interest rate we’ll charge will be based on the income information you give us for your overseas assessment.
This interest rate will apply for the duration of your overseas assessment. We’ll reassess it when you update your income details.
We’ll charge you the highest rate of interest if you do not keep your employment details up to date while you’re overseas.
If you return to the UK, we’ll calculate your interest using the standard UK process, whether you’re employed, self-employed or unemployed, from the date you return.
How we calculate your interest rate
After you leave your course, your interest rate depends on your income.
If your income is:
- the same as or below the lower repayment threshold, we charge the RPI only
- the same as or above the higher repayment threshold, we charge the RPI+3%
- between the two thresholds, we charge the RPI plus up to 3%
To work out the extra percentage (up to 3%) we calculate how far your income sits between the lower and higher repayment thresholds.
We then apply that proportion to 3%.
Example
Your annual income is £40,000.
The lower repayment threshold is £28,400 and the higher repayment threshold is £51,200
Calculation:
Step 1. Calculate the difference between your income and the lower repayment threshold.
£40,000 (your income) - £28,400 (lower repayment threshold) = £11,600
Step 2. Calculate the difference between the two repayment thresholds.
£51,200 (higher repayment threshold) - £28,400 (lower repayment threshold) = £22,400
Step 3. Calculate your Variable Interest Rate (VIR) by dividing your answer from step 1 with your answer from step 2 and multiplying that amount by 3
£11,600 (answer from step 1) ÷ £22,400 (answer from step 2) = 0.517
0.517 x 3 (extra percentage of up to 3%) = 1.553
Your VIR would be 1.55%
This means your total interest rate would be the RPI + 1.55%
This calculation shows the additional percentage charged above RPI when your income sits between the two repayment thresholds. Your total interest rate will always include the RPI.
Income and interest rate examples
| Your annual income | Your total interest rate |
|---|---|
| £29,385 or less | 3.2% |
| £35,000 | 4.06% |
| £40,000 | 4.72% |
| £45,000 | 5.38% |
| £52,885 or more | 6.2% |
These examples have been calculated using the current repayment thresholds and interest rates.
If your annual income falls between these examples, your interest rate will be different.
What is the Retail Price Index?
The Retail Price Index is a measure of inflation that tracks changes in the UK cost of living over time.
What is the interest rate cap?
During some periods we may apply an interest rate cap. This is to make sure you’re not charged a higher interest rate than comparable rates found in the commercial market.
The Department for Education checks comparable market interest rates using data that’s published by the Bank of England.
If these comparable market rates fall below the interest rate being charged on Plan 2 loans, then an interest rate cap will be applied. The comparable market rates are reviewed every month so changes can be made to the interest rate cap if needed.
The interest rate cap is not currently being applied.
Previous interest rates
The rates in the table apply to Plan 2 loans only.
When the interest rate cap is in place, it’s applied to all Plan 2 loans. This is because the interest rate cap is not based on your circumstances or income.
When the Retail Price Index plus up to 3% (RPI+3%) is in place, the amount of interest added to your loan is based on your income.
When the Retail Price Index (RPI) up to the interest cap is in place, the amount of interest added to your loan is based on your income. The interest applied will not be higher than the interest rate cap.
Interest rates applied in 2024
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2024 to 31 August 2025 | 4.3% to 7.3% | RPI+3% |
| 1 August 2024 to 31 August 2024 | 8% | Interest cap |
| 1 June 2024 to 31 July 2024 | 7.9% | Interest cap |
| 1 April 2024 to 31 May 2024 | 7.8% | Interest cap |
| 1 March 2024 to 31 March 2024 | 7.7% | Interest cap |
| 1 January 2024 to 29 February 2024 | 7.6% | Interest cap |
Interest rates applied in 2023
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 December 2023 to 31 December 2023 | 7.5% | Interest cap |
| 1 September 2023 to 30 November 2023 | 7.3% | Interest cap |
| 1 June 2023 to 31 August 2023 | 7.1% | Interest cap |
| 1 March 2023 to 31 May 2023 | 6.9% | Interest cap |
Interest rates applied in 2022
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 December 2022 to 28 February 2023 | 6.5% | Interest cap |
| 1 September 2022 to 30 November 2022 | 6.3% | Interest cap |
| 1 March 2022 to 31 August 2022 | 1.5% to 4.5% | RPI+3% |
| 1 January 2022 to 28 February 2022 | 1.5% to 4.4% | RPI up to interest cap |
Interest rates applied in 2021
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 October 2021 to 31 December 2021 | 1.5% to 4.1% | RPI up to interest cap |
| 1 September 2021 to 30 September 2021 | 1.5% to 4.2% | RPI up to interest cap |
| 1 July 2021 to 31 August 2021 | 2.6% to 5.3% | RPI up to interest cap |
Interest rates applied in 2020
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2020 to 30 June 2021 | 2.6% to 5.6% | RPI+3% |
Interest rates applied in 2019
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2019 to 31 August 2020 | 2.4% to 5.4% | RPI+3% |
Interest rates applied in 2018
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2018 to 31 August 2019 | 3.3% to 6.3% | RPI+3% |
Interest rates applied in 2017
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2017 to 31 August 2018 | 3.1% to 6.1% | RPI+3% |
Interest rates applied in 2016
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2016 to 31 August 2017 | 1.6% to 4.6% | RPI+3% |
Interest rates applied in 2015
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2015 to 31 August 2016 | 0.9% to 3.9% | RPI+3% |
Interest rates applied in 2014
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2014 to 31 August 2015 | 2.5% to 5.5% | RPI+3% |
Interest rates applied in 2013
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2013 to 31 August 2014 | 3.3% to 6.3% | RPI+3% |
Interest rates applied in 2012
| Date | Interest rate | Interest rate type |
|---|---|---|
| 1 September 2012 to 31 August 2013 | 3.6% to 6.6% | RPI+3% |
Updates to this page
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More guidance had been added to explain how Plan 2 interest is calculated and applied to Plan 2 loans.
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Updated guidance on the interest rate cap.
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Plan 2 loan interest rate increased to 8%.
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Previous interest rates table has been updated
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Current interest rate and previous interest rates table have been updated
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Previous interest rates table has been updated
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Interest rate information has been updated
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The current interest rate cap and previous interest rates table have been updated
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Previous interest rates table has been updated
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The interest rate cap and previous interest rates table have been updated.
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Updates have been made to the previous interest rates table
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Updates have been made to the previous interest rates table
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Updates have been made to the current interest rate
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The interest rate has been updated, there is no interest rate cap currently. Previous interest rate table has also been updated.
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Updates have been made to the current interest rate cap and the previous interest rates table.
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Updates made to the current interest rate cap and previous interest rates table.
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Current interest rate cap updated to 4.2% 1 July 2021 to 31 August 2021 - 5.3% added to the previous interest rates table.
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Interest rate information updated due to cap being applied.
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Updated table with interest rate for 2018/19
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First published.