Postgraduate loan interest rates are leaving graduates trapped in an ever-growing debt spiral, campaigners warn, as the system’s punishing terms mean many see their balances rise despite making monthly repayments. The interest rate on postgraduate loans — currently 6.2% and set by the retail prices index (RPI) plus three percentage points — is among the highest in the student loan system, and the repayment threshold has not moved in a decade.
Francesca Peters, 27, knows the feeling well. After finishing her undergraduate degree in biochemistry in 2020 with more than £60,000 of student debt, she took out a postgraduate loan to fund a master’s in bioinformatics at Cranfield University — the only route into her chosen career. The additional borrowing pushed her total debt to £77,000. Four years after graduating, despite having repaid £3,067 as of February 2026, her outstanding balance has actually increased because £3,186 in interest has been added. “It just feels like a life tax,” she says. “Because I’m never going to pay it off.”
Mariella James, 22, embarked on a master’s degree in sustainability and management at the University of Bath after headlines about the youth jobs crisis made her anxious about her prospects. The gamble paid off: she was hired as a social media manager at a sustainable coffee company months before her course ended. Yet relief was short-lived. About £60 is deducted from her wages each month for the master’s loan on top of £15 for her undergraduate debt. Her total owed now stands at £60,500, a figure she finds too daunting to look at. “I choose not to look,” she says.
The mechanics of postgraduate debt
Postgraduate loans — officially Plan 3 loans — operate on terms that critics say are far harsher than the undergraduate equivalents. Repayments kick in at an annual earnings threshold of just £21,000, a figure that has remained unchanged since the loans were introduced in 2016. Adjusted for inflation, £21,000 in 2016 would be worth roughly £29,000 today. Above that threshold, borrowers repay 6% of their income. By contrast, undergraduate Plan 2 loans — taken out by students in England and Wales between 2012 and 2023 — have a repayment threshold of £29,385 and a repayment rate of 9%.
The interest rate on postgraduate loans is set at RPI plus three percentage points. With RPI at 3.6% for the twelve months to February 2026, that translates to a current rate of 6.2%. However, the government has announced that from September this year, the rate will be capped at a maximum of 6% for both Plan 2 and postgraduate loans. The cap is intended to protect borrowers from potential spikes linked to global inflation — a repeat of the government’s intervention in September 2022 when it capped Plan 2 rates at 7.3% to prevent them rising to 12%.
The combination of a low repayment threshold, a high interest rate, and the fact that interest is charged from the day the first payment is made means many graduates see little progress. “The terms for the postgraduate loan are some of the most egregious out there,” says Oliver Gardner, founder of the campaign group Rethink Repayment. “Because the repayment threshold is so low. And the interest rate that can be charged is always so high.”
Graduates with both undergraduate and postgraduate loans face two separate deductions from their salary each month — 9% above the Plan 2 threshold and 6% above the postgraduate threshold — meaning a combined 15% of earnings above £29,385 can go towards loan repayments. The postgraduate loan is a fixed sum — currently £12,858 for a master’s degree — which often covers only tuition fees, leaving students to fund living costs separately.
The scale of the problem
The latest figures from the Student Loans Company show that the total owed in student loans in England jumped by 10.5% to £294.6 billion in the 2025-26 financial year. Of the extra £28 billion, just over £12 billion was accrued interest. The total outstanding debt stood at £267 billion as of March 2025, and projections suggest it could reach £500 billion by the late 2040s. The average debt for borrowers who finished their course in 2023 was £47,900 when they became liable to repay — a figure higher than in any other analysed OECD country.
The number of borrowers with £100,000 or more in student debt has surged by 33% to over 150,000 by June 2025. Among Plan 2 borrowers, only 23% were expected to fully repay their loans within 30 years. In the 2024-25 financial year, £15 billion in interest was added to student loans, compared with just £5 billion in repayments.
Postgraduate-specific lending rose by 8.7% to £800 million in the last year, and roughly £8 billion of the near-£300 billion outstanding debt relates to postgraduate degrees. For graduates like Peters and James, the burden is not just financial but psychological. “The big feeling is that — if you have both an undergraduate and a postgraduate loan — the financial burden is so significant that it’s holding them back, particularly if you’re in a job that isn’t paying you huge sums of money,” Gardner says.
Calls for reform
Rethink Repayment argues that the system should be redesigned so that “loans act like loans, not a tax you’re stuck with for life,” in Gardner’s words. The group wants the repayment threshold to keep pace with wages, interest capped at the consumer prices index (CPI) rather than RPI, and the Plan 2 repayment rate lowered to 5%. It also calls for restoring the Plan 2 threshold to its original level and ending the freeze on the postgraduate threshold. The government recently raised the Plan 2 threshold for the first time since 2021 — to £29,385 from April 2026 — but then confirmed it would be frozen for three years from April 2027. That freeze means that as wages rise with inflation, a larger proportion of graduates’ income becomes subject to the 9% repayment rate, effectively acting as a stealth tax.
Francesca Peters believes the postgraduate loan should be interest-free. “We want to repay these loans … but if they’re charging these outrageous interest rates, then you’re just fighting an endless battle,” she says. She points out the unfairness of a threshold that has not moved in a decade: “£21,000 in 2016 is now worth £29,000. That’s a big difference.”
Mariella James argues that master’s fees should be lowered because the cost shuts out students from less privileged backgrounds. She says she felt like the “odd one out” on her course because she was among the few who did not have fees paid upfront by parents. “I would love to pay it off in one go so I avoid the interest, but I can’t. And it just made me jealous of the people that didn’t have to get a loan.”
The Department for Education defends the current arrangements. A spokesperson said: “We’ve raised the repayment threshold for plan 2 loans for the first time since 2021 and have capped maximum interest rates for plan 2 and postgraduate loans this year to protect graduates from rising costs. Graduates — especially those with postgraduate degrees — generally benefit from higher earnings, and repaying their loan is fair for those workers who have not gone to university or graduates on lower salaries.”
But for those trapped in the system, fairness feels distant. As James puts it, the current system “is just tripping people up before they can really do anything with their lives.”
