Fear of debt can be a heavy load, and over two-thirds of UK students are worried about leaving university with thousands they need to repay. If you are among them (or maybe you have a child who is concerned about this), then 2026 is a year worth paying close attention to.
The student finance system in England is going through its most significant overhaul in over a decade. New repayment terms are being phased in. Interest rates are shifting. Amidst it all, families are confused.
The picture is increasingly nuanced about how to approach financial planning for higher education (HE). In this article, our financial planners at Castlegate set out what you need to know - and what you should be planning for.
It can be hard to advise a newcomer to university because so many cohorts have experienced different funding rules over the last few decades.
Most graduates in England are currently repaying their loans under either Plan 2 or the newer Plan 5 terms, depending on when they started their course:
Plan 2 (applies to most graduates who started between 2012 and 2022). Repayments are made at 9% on earnings above £27,295 per year, with any outstanding debt written off after 30 years. RPI to RPI + 3%, depending on income.
Plan 5 (applies to those starting from 2023 onwards). Here, the repayment threshold is lower - currently £25,000 - and the write-off period has been extended to 40 years. RPI only (no +3%).
Interest on student loans is linked to the Retail Price Index (RPI). As RPI has fallen back from its post-pandemic highs, interest rates on loans have eased somewhat.
However, RPI still sits above the Bank of England’s 2% inflation target, and real debt balances continue to grow for lower and middle earners who are not yet repaying above the threshold.
This is another source of confusion, leading to poorly informed decisions.
Of course, student debt is not the same as credit card debt. You cannot be chased by creditors if you do not repay them. Your credit score is not affected by your repayments (which are taken automatically from your salary, and only when you earn above the relevant threshold).
And importantly, if you never earn enough to repay the debt in full, the remainder is written off.
However, this does not mean student loans are irrelevant to financial planning. It can help to see it as a kind of “a graduate contribution” or “tax”; i.e. a future earnings-linked obligation.
Most people will never fully repay. Under Plan 5, only the highest-earning graduates are likely to clear their balance before the 40-year write-off point.
Taken together, this means that blanket advice to “pay it off as quickly as possible” is often misguided. However, be careful not to underestimate how much your monthly repayments could reduce your take-home pay once you do start earning above your threshold after graduation.
Perhaps you are a graduate managing repayments. Or maybe you represent a family planning ahead for university years. Regardless, here are some key areas worth addressing now.
The repayment terms, interest rates and write-off periods differ significantly between Plan 2 and Plan 5. So, it’s vital to know which apply to you - and what that means for your total repayments.
Graduates can check their plan type and current balance via the Student Loans Company online portal.
The key question is not how much you owe today, but how much you are likely to repay over your working life.
A graduate expecting a modest salary in the charity or public sector will repay far less than one pursuing a career in law or finance — even if they started with an identical loan balance.
Running the numbers based on realistic earnings projections will quickly reveal whether voluntary overpayments make any sense at all.
For most graduates, the 9% repayment rate on earnings above the threshold is effectively a fact of life. It functions like an additional income tax band and cannot be meaningfully reduced by adjusting behaviour.
Against that backdrop, the priority is usually to build financial foundations alongside the loan: an emergency fund, pension contributions (especially where an employer will match them) and progress towards a housing deposit.
Student loan planning is not a one-time decision. As earnings grow, careers develop and life priorities shift, the calculations change.
Today, a graduate might look unlikely to repay their full balance. However, after a promotion or career change, they may find themselves in a very different position.
Regular reviews - ideally as part of a broader financial planning conversation - ensure that the approach remains appropriate.
Much of this article focuses on navigating student debt once it already exists. But for parents and grandparents thinking further ahead, there is a more powerful question to consider: what if the debt burden could be reduced - or its impact significantly softened - before university even begins?
Compound growth is one of the most powerful forces in personal finance - and time is its essential ingredient.
A Junior ISA (JISA), for example, allows parents and grandparents to save or invest up to £9,000 per year on behalf of a child. Invested from birth, even modest regular contributions can grow into a meaningful sum by the time a child turns 18.
Grandparents are often well-placed to contribute here. Gifts from surplus income can be exempt from inheritance tax, and lump-sum gifts can also fall within annual gift allowances.
At Castlegate, we work with clients across generations - helping families think through how to support children through education without compromising their own retirement plans.
We also support graduates in building sound financial foundations from the earliest stages of their careers.
If any of these questions are relevant to your situation, we would be glad to help you work through them.
Get in touch for a no-obligation conversation to explore how student finance fits into your wider financial picture.
Your capital is at risk. Investments can go down as well as up, and you may not get back the amount you originally invested. Past performance is not indicative of future results. Diversification does not guarantee profits or fully protect against losses. Tax treatment depends on individual circumstances and may change in the future. This content is for information only and does not constitute personal financial advice. Readers should seek independent financial advice before making any investment decisions.
Castlegate Financial Management Limited is registered in England No. 2077374. Registered Office: 8 Castlegate, Grantham, Lincolnshire. NG31 6SE. Authorised and Regulated by the Financial Conduct Authority. FCA No. 169777.
