Should You Pay Tuition Upfront or Take the Loan?
The answer depends on how much the graduate will earn over their career — and starting salary alone doesn’t tell the whole story.
The Cost of Paying Upfront
At the current maximum tuition fee of £9,250 per year, a standard three-year undergraduate degree costs £27,750 in tuition fees alone. Paying this upfront means handing over that sum before the student even starts, with no possibility of getting any of it back.
That money is gone regardless of what happens next — whether the graduate earns £25,000 or £100,000 a year, the cost is fixed at £27,750.
What Happens If You Take the Loan Instead
Under Plan 5, tuition fee loans are written off 40 years after the graduate becomes eligible to repay. Repayments are 9% of earnings above the £24,996 threshold, and interest is charged at RPI only.
The total you end up paying depends on your earning trajectory over those 40 years, and graduates broadly fall into three groups:
- Low earners — repayments stay small and the loan is partially written off. Total cost ends up well below £27,750. The loan is clearly cheaper than paying upfront.
- Middle earners — this is the trap. You earn enough to keep repaying for decades but not enough to clear the balance before interest compounds. Total repayments can exceed the upfront cost, sometimes significantly. This is the group that ends up paying the most.
- High earners — clear the loan relatively quickly, so interest doesn’t compound much. Total cost is close to or slightly above the upfront price, and you kept your capital in the meantime.
The Salary Growth Trap
A graduate starting on £30,000 might think “at this salary I’ll barely repay anything.” But salaries grow. At 4% annual growth — a typical career progression — a £30k starting salary reaches roughly £65k after 20 years.
As salary grows, repayments increase, and many graduates who expected to be in the “low earner” category end up firmly in the middle-earner zone, paying more than the upfront cost over the life of the loan.
The chart below shows how this plays out. Notice the gap between the flat-salary line and the growing-salary line — that gap is the hidden cost of salary growth that a snapshot of your starting salary won’t reveal.
When Paying Upfront Makes Sense
Paying upfront can save money for graduates who will land in the middle-earner zone — not just the highest earners.
- The graduate expects moderate-to-high earnings over their career (the middle-earner zone where total repayments exceed the upfront cost)
- The family has the funds available without impacting their own financial security
- The graduate wants to avoid decades of repayments that end up exceeding the original tuition cost
When Taking the Loan Makes Sense
The loan works best at the extremes of the earning spectrum, and as a safety net for uncertainty.
- The graduate expects to stay on a lower salary — the loan will be partially written off, costing less than paying upfront
- The graduate expects very high earnings — they clear the loan quickly and kept their capital invested in the meantime
- The family would rather keep the £27,750 as a financial safety net
- Repayments adjust automatically if earnings drop — built-in insurance that paying upfront doesn’t offer
Key Takeaways
- The loan is not universally cheaper than paying upfront — it depends on earning trajectory
- Starting salary is misleading; salary growth pushes many graduates into higher repayment brackets over time
- Middle earners often end up paying the most due to interest compounding over decades of repayments
- The loan works best for genuine low earners (partial write-off) or very high earners (fast repayment)
- Use the calculator to model your specific scenario with your expected salary and growth rate