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.
- From:
- Student Loans Company
- Published
- 15 May 2019
- Last updated
-
166SeptemberApril20242026 — See all updates
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.
WhenHow interest is applied
You’reWe chargedadd interest to your balance each month from the day we make your first payment to youyou, or to your university or collegecollege.
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. Interest
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 addedbecause 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 eachif month.needed.
AnnualIf 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 raterate. changesWe get this information from HMRC after the Self Assessment deadline.
TheWe’ll charge interest at the RPI rate only until we get this information. This is usuallybecause setwe ondo 1not Septemberknow eachyour year,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 Retailincome Priceinformation Indexwe 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 previousyear, March.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 chargedinterest israte normallywe’ll charge will be based on the Retailincome Priceinformation Indexyou plusgive 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 3%,date dependingwhile onyou’re overseas.
If you return to the UK, we’ll calculate your circumstancesinterest andusing 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.
However,If duringyour someincome periodsis:
- the same as or below the lower repayment threshold, we
maycharge 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 anthat interestproportion capto 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 ensure3%) you’re= not1.553
Your beingVIR would be 1.55%
This means your total interest rate would be the RPI + 1.55%
This calculation shows the additional percentage charged aabove higherRPI when your income sits between the two repayment thresholds. Your total interest rate thanwill comparablealways ratesinclude foundthe inRPI.
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 commercialcurrent market.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?
It’sThe Retail Price Index is a measure of inflation,inflation whichthat measurestracks changes toin the UK cost of living inover the UK.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 monitorschecks comparable market interest rates using monthly data that’s published by the Bank of England.
If thethese average comparable market raterates isfall lowerbelow than the interest rate you’re being charged on your Plan 2 loan,loans, we’llthen applyan a temporary interest rate cap,cap sowill you’rebe notapplied. disadvantaged. The comparable market raterates isare reviewed monthlyevery andmonth aso changechanges can be made to the interest rate cap made if necessary.needed.
There’sThe no interest rate cap is not currently being used.applied.
Previous interest rates
The rates in the table apply to Plan 2 loans only.
When Thethe amountsinterest shownrate arecap is in place, it’s applied to all Plan 2 loans. This is because the maximuminterest forrate eachcap period.is Dependingnot based on your income,circumstances or income.
When the Retail Price Index plus up to 3% (RPI+3%) is in place, the amount of interest rateadded youto wereyour chargedloan mightis havebased beenon loweryour 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 maximuminterest shown.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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Update history
2026-04-06 00:01
More guidance had been added to explain how Plan 2 interest is calculated and applied to Plan 2 loans.
2024-09-16 14:52
Updated guidance on the interest rate cap.
2024-08-01 11:40
Plan 2 loan interest rate increased to 8%.
2024-07-10 11:23
Previous interest rates table has been updated
2024-04-01 13:00
Current interest rate and previous interest rates table have been updated
2024-03-01 13:44
Previous interest rates table has been updated
2024-01-01 10:00
Interest rate information has been updated
2023-12-01 12:02
The current interest rate cap and previous interest rates table have been updated
2023-09-01 11:53
Previous interest rates table has been updated
2023-06-01 10:54
The interest rate cap and previous interest rates table have been updated.
2023-03-01 11:37
Updates have been made to the previous interest rates table
2022-12-01 13:37
Updates have been made to the previous interest rates table
2022-09-01 09:00
Updates have been made to the current interest rate
2022-03-01 00:30
The interest rate has been updated, there is no interest rate cap currently. Previous interest rate table has also been updated.