Student Loan Debt UK 2026: Why Your Balance Keeps Rising

TL;DR

Student loan debt UK 2026: Many graduates are watching their loan balances grow by thousands each year, even while making monthly payments. This happens because Plan 2 interest rates (currently up to 6.2%) often exceed what you repay. The key insight? These loans work more like a graduate tax than traditional debt - you pay 9% of earnings above £29,385, and the balance gets written off after 30 years. Understanding this changes everything about your university decision.

The Headline That Shocked Graduates

You might have seen the recent story in The Guardian: a nurse borrowed £57,000 for university, has paid back over £5,000 - and now owes £77,000.

That’s not a typo. Her debt has grown by £20,000 despite years of monthly payments.

When I first read this, my reaction was probably the same as yours: how is that even possible? But once you understand how UK student loans actually work in 2026, it makes complete sense. And more importantly, it changes how you should think about student finance if you’re considering university.

Let me explain what’s really going on, and why this shouldn’t necessarily stop you from pursuing higher education.

Why Student Loan Balances Keep Growing

Here’s the uncomfortable truth about student loan debt in the UK right now.

Plan 2 loans (taken out between 2012-2023) charge interest from the moment you start your course. For the 2025-26 academic year, that rate is up to 6.2% according to GOV.UK - that’s the Retail Price Index (RPI) of 3.2% plus an additional 3%.

In August 2024, the rate hit 8%. Think about that for a moment.

If you owe £50,000 at 6.2% interest, that’s roughly £260 added to your balance every single month - before you’ve even started repaying. For someone with £77,000 of debt like the nurse in the news, monthly interest can exceed £400.

Meanwhile, repayments depend entirely on your income. You pay 9% of everything you earn above the threshold - currently £28,470, rising to £29,385 in April 2026. On a £35,000 salary, that works out to about £49 per month.

Do the maths: £49 coming off, potentially £300+ being added. The debt grows.

Real Numbers from Real Graduates

The examples coming out in the news this week paint a clear picture of student loan debt UK 2026:

Sources: The Guardian, February 2026; Student Loans Company data

These aren’t unusual cases. They’re what happens when you combine high interest rates with income-based repayments and reasonable (not extraordinary) salaries.

The Budget Change Making Things Worse

In the October 2025 Budget, Chancellor Rachel Reeves announced that the Plan 2 repayment threshold would be frozen at £29,385 until 2030 - instead of rising with inflation as expected.

According to analysis from the Institute for Fiscal Studies, this means:

• More graduates will start repaying sooner (as wages rise but thresholds don’t)
• Existing graduates will repay 9% of a bigger chunk of their salary
• 5.8 million people with Plan 2 loans are affected

Even Labour MP Nadia Whittome highlighted the problem on Instagram: she left university in 2019 with £49,600 of debt. Six years later, as an MP earning a top-5% salary, her repayments have shaved just £1,000 off that debt.

“If MPs are barely making a dent in their student loan debt after six years of repayments,” she said, “what chance do other graduates have?”

Why It’s Called a Graduate Tax (Not Really a Loan)

Here’s where I need you to shift your thinking about student loan debt UK 2026.

Martin Lewis and other financial experts have been pushing for student loans to be rebranded as a “graduate contribution system.” Why? Because they don’t work like normal debt:

• You only pay when earning above the threshold - no payments if unemployed or earning less
• Payments are percentage-based - 9% of income above threshold, regardless of balance
• It’s collected like tax - comes straight from your paycheck via PAYE
• Written off after 30 years - even if you haven’t repaid a penny
• Doesn’t affect your credit score - mortgage lenders see it differently than credit card debt

Most Plan 2 borrowers will never repay their loans in full. According to Student Finance England data, the majority of graduates will see their remaining balance written off after three decades.

This is fundamentally different from a mortgage or car loan where the full amount must be repaid.

What This Actually Means for Your Wallet

Let’s get practical. If you’re earning £35,000 a year:

Your student loan repayment:

• Threshold: £29,385
• Amount above threshold: £5,615
• 9% of that: £505 per year (about £42/month)

That £42/month comes out of your salary automatically. Your debt might grow in the background, but your actual monthly budget impact is fixed by your income, not your balance.

Think of it this way: whether you owe £40,000 or £90,000, your repayment at £35,000 salary is still £42/month. The balance only matters if you’re likely to repay in full before 30 years - which requires either very high earnings or a very small initial debt.

Should You Still Go to University?

This is the question I get asked constantly. With student loan debt UK 2026 looking so alarming, is university still worth it?

Here’s my honest take as someone who’s helped hundreds of EU citizens navigate UK student finance through UniStart:

The maths still works for most people - not because you’ll clear the debt, but because:

1. The earnings premium is real - graduates earn on average £10,000+ more per year than non-graduates over their careers
2. Your payments are capped - you’ll never pay more than 9% above threshold, regardless of balance
3. It’s risk-free borrowing - if your career doesn’t work out, you pay little or nothing
4. Tuition is covered upfront - you don’t need £9,535 in savings to start your degree
5. Living costs are supported - up to £13,762 for London students in 2025-26

The graduates making headlines aren’t saying “I wish I’d never gone to university.” They’re saying the system should be clearer and fairer. Those are different things.

What About EU Citizens with Settled Status?

If you’re an EU citizen living in the UK with settled or pre-settled status, here’s important context:

You’re eligible for the same student finance as UK citizens if you’ve lived here for at least 3 years. That means:

Source: GOV.UK Support with Living Costs 2025-26

The same Plan 2 terms apply to you. Yes, your debt may grow while you’re paying. But you also get the same protections: income-based repayments, 30-year write-off, no impact on credit score.

Understanding what student loan debt UK 2026 actually means is the first step to making an informed decision.

Pro Tip: When Overpaying Makes Sense (And When It Doesn’t)

Should you try to pay off your student loan faster? According to Martin Lewis’s MoneySavingExpert, the answer for most people is no.

Don’t overpay if:

• You won’t clear the full balance before write-off
• Your income is moderate and unlikely to surge
• You have other debts with higher effective interest

Consider overpaying if:

• You’re a very high earner (£60,000+) likely to repay in full
• You have few other financial priorities
• You’ve used a student loan calculator and the numbers support it

For most graduates, every pound overpaid is a pound you could’ve spent or saved elsewhere - money you’d have lost anyway to the 30-year write-off.

Common Myths About Student Loan Debt UK 2026

Myth #1: “My debt will ruin my credit score” ➜ Student loans don’t appear on your credit file. Mortgage lenders consider them but calculate affordability based on your net income after loan repayments.

Myth #2: “I’ll be paying forever” ➜ Maximum 30 years. After April 2052 for most Plan 2 borrowers, remaining debt is legally written off.

Myth #3: “I should wait until fees are cheaper” ➜ Fees are actually rising to £9,790 for 2026-27. And every year you delay is a year of graduate-level earnings you’ve missed.

Myth #4: “The debt will stop me buying a house” ➜ Lenders deduct your loan repayment from income when assessing mortgages. A £40 monthly repayment has minimal impact on borrowing capacity.

FAQs About Student Loan Debt UK 2026

Why is my student loan growing even though I’m paying? Plan 2 interest rates (up to 6.2% in 2025-26) can add more each month than your income-based repayments remove. This is normal for moderate earners and doesn’t mean you’re doing anything wrong.

Will student loans be forgiven or converted to a graduate tax? Calls for reform are growing, but no policy change is confirmed. Former regulators have described the current system as “doomed,” but for now, Plan 2 terms remain as they are.

What is the student loan repayment threshold for 2026? The threshold rises to £29,385 in April 2026 and will be frozen there until 2030. You repay 9% of earnings above this amount.

Should I avoid university because of student debt? For most people, no. The graduate earnings premium, income-contingent repayments, and 30-year write-off mean the financial risk is lower than headlines suggest. What matters is choosing a course aligned with your goals.

Can EU citizens access UK student finance? Yes - if you have settled or pre-settled status and have lived in the UK for 3+ years, you’re eligible for the same loans as UK citizens. Check your eligibility with UniStart.

Making an Informed Decision About University

Student loan debt UK 2026 looks scary in headlines. A nurse with £77,000 debt after years of payments feels wrong, and the system deserves criticism for its complexity and opacity.

But here’s what I want you to take away:

1. The balance isn’t the point - your monthly payment is determined by income, not debt size
2. It’s closer to a tax than a loan - 9% above threshold for 30 years, then forgiven
3. Education still pays - the graduate earnings premium is real and substantial
4. You’re protected - low earnings mean low payments, even if debt grows

If you’re an EU citizen with settled status wondering whether university is right for you, UniStart is here to help. Our advisors understand both the funding system and the unique pathways available to adult learners starting their university journey.

The debt headlines are real. But so is the opportunity.

Ready to understand your student finance options?

👉 Download the UniStart app to explore funded courses and check your eligibility

👉 Request a free callback from a UniStart advisor to talk through your options

“Student finance can feel overwhelming when the headlines are so alarming. But understanding how the system actually works - that repayments are tied to income, not debt size, and that balances are written off - changes everything. If you’re considering university, don’t let scary numbers stop you from having an informed conversation about your future.” - Radu Danila, Founder