In England and Australia a student loan behaves like a graduate tax; in the US and India it is a debt you must clear

The short answer: the same balance means different things in different countries. A graduate in England on a Plan 5 loan repays 9% of income above £25,000 and has whatever is left written off after 40 years¹²; a graduate in Australia repays 15% of income between $67,000 and $125,000³. A family in India financing a degree abroad pays a fixed monthly instalment whatever the graduate earns, at a floating rate — 9.40% a year on SBI’s secured study-abroad loan⁴. The first kind behaves like a tax on graduate earnings; the second like a mortgage. Planning for one as if it were the other is the commonest mistake.

The systems side by side

United States: a debt with a new safety net

Americans owed $1.65 trillion in student loans at the end of June 2026, and 10.6% of balances were 90 or more days past due⁵. The 2025 reconciliation law rewrote federal lending for anyone borrowing from July 2026: no new Graduate PLUS loans, graduate borrowing capped at $20,500 a year and $100,000 in total, professional students at $50,000 a year and $200,000, and Parent PLUS at $20,000 a year and $65,000⁸. The income-contingent plans, including PAYE and SAVE, close after July 2028⁸.

Its replacement, the Repayment Assistance Plan, charges between 1% and 10% of adjusted gross income, less $50 a month per dependant, never below $10 a month; unpaid interest is not added to the balance, and what remains is forgiven after 360 qualifying monthly payments⁹⁸. New undergraduate loans carry 6.52% for 2026-27, graduate unsubsidised loans 8.07% and PLUS loans 9.07%¹⁰. The safety net is real, but thirty years is most of a working life, and the Federal Reserve’s household survey found 41% of borrowers required to pay had recently struggled to¹⁷.

England, Australia and New Zealand: a share of income

In an income-contingent system the balance decides how long you pay, not how much each month. The repayment is a fixed share of income above a threshold, collected through payroll or the tax return. Three graduates, each on the rules above, show how small the monthly effect can be:

England’s scheme is the clearest case of debt that is not really debt. The average English borrower entering repayment in 2026 owed £47,730 (a provisional figure), and the outstanding total reached £294.6 billion in March 2026⁶. The Department for Education expects 55% of Plan 5 starters in 2025/26 to repay in full, against 32% of the 2022/23 Plan 2 cohort⁷. For everyone else the repayment is, in effect, 9% extra tax on income above the threshold for 30 or 40 years, and paying the balance down early only helps those likely to clear it anyway.

The rules move. The Plan 2 threshold will be held at its 2026-27 level for three years from April 2027, which raises repayments in real terms¹⁸, while Plan 2 interest was capped at 6% for 2026/27, from September 2026¹¹. Australia cut accumulated HELP debts by 20% in 2025 and switched to a marginal system in which repayment rises only on income above $67,000³. New Zealand charges no interest at all to borrowers who live there, and 5.6% to those who move abroad¹³ — a rule worth knowing for a family whose graduate plans to work in Australia or the Gulf.

Canada: interest-free, with income-based relief

Canada removed interest permanently from the federal portion of Canada Student Loans from 1 April 2023, including loans already in repayment¹⁴. Repayment starts after a six-month non-repayment period¹⁶, and under the Repayment Assistance Plan a borrower in a household of one with gross income below $3,866 a month makes no payment at all¹⁵. Provincial loans sit alongside and may follow different rules¹⁵.

The international student who borrows at home

A student going abroad cannot usually use the destination’s government loans, so the family borrows at home. In India that means a bank loan with a fixed monthly instalment. SBI’s published rates from June 2026 were 9.90% for an unsecured student loan of up to ₹7.5 lakh, and 9.40% for its Global Ed-Vantage study-abroad loan with collateral, for amounts from ₹7.5 lakh to ₹3 crore; rates float with the bank’s benchmark, and girl students get 0.50% off⁴.

At 9.40% a year, a ₹40 lakh loan repaid over ten years costs an EMI of about ₹51,540 a month — about ₹61.85 lakh in all, of which about ₹21.85 lakh is interest⁴. Unlike an English or Australian loan, that EMI is due whether the graduate finds a well-paid job abroad, comes home to a lower salary or does not work at all, and the parents who co-signed or pledged property carry it if the student cannot.

For study in India, the government’s PM-Vidyalaxmi scheme offers collateral-free, guarantor-free loans to students admitted to the top 860 institutions by NIRF ranking, a 75% credit guarantee on loans up to ₹7.5 lakh, and 3% interest subvention on loans up to ₹10 lakh where family income is up to ₹8 lakh¹⁹. Families earning up to ₹4.5 lakh a year receive full interest subvention under the central subsidy scheme²⁰.

What student debt does to household finances

The best-known study is by Federal Reserve economists Alvaro Mezza, Daniel Ringo, Shane Sherlund and Kamila Sommer, who followed a nationally representative cohort, aged 23 to 31 in 2004, through credit-bureau records from 1997 to 2010²¹. They estimated that a 10% increase in student debt causes a 1 to 2 percentage point drop in the home-ownership rate of borrowers in the first five years after leaving education²¹. The mechanism is ordinary: a monthly repayment reduces what a lender will advance and what a household can save toward a deposit.

• It is common. Sixteen percent of all US adults had outstanding student loans in 2025¹⁷.
• Payment difficulty is widespread where repayment is fixed. In the same survey, 41% of those required to make payments had recently had difficulty doing so¹⁷.
• Income-contingent debt bites differently. It rarely causes arrears, because it falls when income falls, but it acts as a long-running deduction from take-home pay — about £900 a year at £35,000 on Plan 5¹ — that a household should count in its saving rate.
• Parental loans move the debt to the parents. A Parent PLUS loan, capped at $65,000 for new borrowing from July 2026⁸, or an Indian EMI co-signed by parents, competes directly with the parents’ own saving for independence.

Whether to clear a student loan early or invest instead turns on the same question as any other debt — its real interest rate against what the money would earn — with one twist: a loan likely to be written off should usually not be overpaid. The general case is set out in pay off debt or invest.