Research by wealth manager Rathbones reveals that those on some salaries can end up repaying more than both lower and higher earners
Certain people earning between £45,000 and £50,000 are being caught in a costly “repayment trap” that could see them hand back nearly three times what they borrowed, new analysis warns. Research by wealth manager Rathbones reveals that those on mid-range salaries can end up repaying more than both lower and higher earners.
And they say that is simply because they remain in debt the longest. A graduate starting out on around £47,000 with a £50,000 Plan 2 student loan could repay £136,000 over 30 years, making it the worst financial outcome under the current system.
The figures expose what experts describe as a “student loan danger zone” where earnings are too high to benefit from a meaningful write-off, yet not high enough to clear the debt swiftly. Adding to the problem is widespread confusion surrounding the income thresholds at which graduates begin repaying their loans.
The situation is further complicated for those who pursue postgraduate study, such as a Master’s degree, as they face repayments kicking in at a much lower income threshold, which can swallow a significant portion of their wages.
Why middle earners lose out
The issue stems from how interest accumulates. Those in the £45k–£50k bracket make steady repayments but not enough to meaningfully reduce the balance, allowing interest – capped at up to 6% – to build up over decades.
Ed Wood, financial planning director at Rathbones, said: “Many people assume the highest earners are worst hit by student loans, but the reality is more complex. Middle earners can end up paying the most simply because they’re trapped repaying for longer, allowing interest to build up year after year.”
How earnings affect total repayments
The analysis, based on a £50,000 Plan 2 loan, reveals a striking difference depending on salary:
- £30,000 starters repay about £50,000 over 30 years, with much of the balance written off
- £40,000 starters repay just over £100,000, yet still don’t clear the debt
- £47,000 starters repay the most at around £136,000
- £50,000 starters repay roughly £122,000
- £63,000 starters repay far less – about £90,000 because they clear the loan quicker
Higher earners sidestep this trap as their wages are sufficient to cover interest from the outset, preventing the debt from spiralling. Meanwhile, those on lower salaries repay less overall as a substantial portion of their loan is ultimately written off after 30 years.
Mr Wood added: “The headline debt figure can look frightening, especially for lower earners, but what really matters for most people is the monthly repayment, not the balance. In that sense, student loans behave far more like a graduate tax than a conventional debt. But as earnings rise over time, the maths shifts – and paying the loan off can start to make sense.”
Families stepping in
The research emerges as households wrestle with the decision of whether to settle tuition fees in advance. Mr Wood said: “From experience with clients, many parents and grandparents have high expectations for their children or grandchildren and assume they’ll go on to earn strong salaries. As a result, they often plan to pay university fees upfront to spare them the burden of student debt.
“Grandparents may also see a double benefit: helping with fees now while potentially reducing a future inheritance tax bill. However, there’s no one-size-fits-all answer. The key is understanding how student loans actually work before making any irreversible decisions.”
Should you overpay?
The study indicates that making additional payments only proves worthwhile in certain circumstances – especially for graduates who are likely to become higher-rate taxpayers.
Critical considerations include:
- Monthly repayments matter more than the headline debt
- Middle earners often pay the most overall
- Overpaying tends to suit higher earners
What are the repayment thresholds?
Income threshold confusion
A significant area of bewilderment stems from the fact that there isn’t a single student loan framework – and repayment thresholds differ based on both the plan type and whether the loan covers undergraduate or postgraduate study.
Undergraduate loans (England)
- Plan 1: repay 9% of income above £24,990
- Plan 2: repay 9% above £27,295
- Plan 5: repay 9% above £25,000
Only one of these applies at a time, depending on when you studied.
Postgraduate loans
- Repay 6% of income above £21,000
This sits on top of any undergraduate repayments. That means some borrowers repay both at once – potentially losing up to 15% of income is an individual is above the relevant income thresholds. All repayments are automatically deducted through PAYE and managed by the Student Loans Company.
