A significant majority of graduates are experiencing an increase in their student loan balances, even while making payments, according to new data. In May 2026, 82.6% of graduates saw their debt grow faster than their repayments, an increase from 76% earlier in the year. This trend means that out of approximately 8.5 million student loan balances, over seven million had increased, while only about 1.5 million had decreased.

Rising Interest Rates Fuel Debt Growth

The surge in student loan balances is largely attributed to high inflation over the past five years, which has driven up interest rates on these loans. In the 2020-21 academic year, graduates with a 'Plan 2' loan, the most common type, faced a maximum interest rate of 5.6%. By 2024-2025, this rate had climbed to 7.3%. A previous dip in the maximum interest rate to 4.5% in 2021-2022 corresponded with a reduction in the percentage of graduates with rising balances, falling to 62% during that period.

Repayment Threshold Frozen

Further compounding the issue, Chancellor Rachel Reeves froze the salary threshold for student loan repayments for three years starting in April. Graduates on 'Plan 2' loans must earn above £29,385 before repayments are deducted from their wages. By not adjusting this threshold in line with inflation, more graduates are being drawn into repayment obligations than would occur if the threshold rose with the cost of living. This policy has been criticized by campaigners who argue the government is treating student debt as a revenue-generating measure.

Understanding Student Loan Plans

Student loans in England and Wales are categorized into different plans based on the study period and course level. 'Plan 2' loans apply to undergraduate studies between September 2012 and July 2023. 'Plan 3' loans cover postgraduate master's or doctoral courses. Older loans are covered by 'Plan 1' (pre-2012 undergraduate) and newer ones by 'Plan 5' (from August 2023 onwards). 'Plan 4' is for Scottish students.

Sajni Shah, a money expert at Compare the Market, noted that many graduates assume their loan balance will decrease once repayments begin. However, she explained that student loans differ from other forms of borrowing due to accumulating interest over time. While repayments are income-contingent, understanding the loan's mechanics is crucial for financial planning.