Middle earners repay the most on student loans, analysis finds

Graduates earning middle-range salaries could end up repaying more on student loans than either lower or higher earners under the current Plan 2 system, analysis from Rathbones revealed.

The research identified a “student loan danger zone” for graduates starting their careers on salaries between £45,000 and £50,000.

According to the analysis, a graduate earning around £47,000 with a £50,000 Plan 2 student loan could repay approximately £136,000 over 30 years – nearly three times the original amount borrowed.

The findings are based on current Plan 2 rules, including an interest rate capped at 6%, annual salary growth of 4%, Retail Prices Index-linked inflation of 3%, and loan write-off after 30 years.

The issue arises because graduates in this salary range earn too much to benefit significantly from loan write-offs, but not enough to repay the balance quickly, allowing interest to accumulate for decades.

Graduates starting on £40,000 are also heavily impacted, repaying more than £100,000 over the full 30-year term while still failing to clear the balance before write-off.

By contrast, higher earners may pay less overall.

Rathbones estimated that a graduate starting on around £63,000 would repay roughly £90,000 in total, as their earnings are high enough to cover interest immediately and clear the loan more quickly.