Real vs nominal: what inflation does to a loan
Figures as of · Use the student loan calculator
Two ways to read the same number
A nominal figure is the actual pounds involved at the time. A real figure — also called "today's money" — adjusts that for inflation, so it can be compared fairly with what a pound buys right now.
A student loan runs for decades. A nominal total from year 30 of a loan overstates what that money will actually be worth by the time it's due, because prices rise every year in between. Showing figures in today's money fixes that comparison. The deduction that leaves your payslip each period is a nominal figure — HMRC and your employer only ever deal in the pounds on the day.
Why 30 years of inflation matters
Take an illustrative nominal balance of £50,000 sitting on the books in year 30 of a Plan 2 loan. Assume prices keep rising at the most recently published RPI rate of 4.1% a year for the whole period — a simplifying assumption, not a forecast. Deflating that nominal figure back to today's terms — nominal ÷ (1 + inflation)^30 — leaves it worth around £14,978 in today's money.
The erosion isn't a cliff at the end — it's gradual. Halfway through, at year 15, that same nominal £50,000 would already be worth only around £27,366 in today's terms, assuming the same steady rate throughout. The real value keeps falling every year that follows, not just in the final one.
Why you can't compare two years' figures directly
The same problem shows up outside loan balances. Compare a salary figure from several years ago with one from today, and the comparison is misleading unless both are expressed in the same year's money — a pay rise that only matches inflation is zero real growth, even though the nominal number went up. Compounding the 15 annual RPI figures this site holds, from 2012 to 2026, prices have risen by roughly 67% across that span. A nominal figure from either end of it needs adjusting before it can be compared with the other fairly.
RPI is the inflation measure behind it
The figure used above — RPI, the Retail Prices Index — is published by the ONS and is also the starting point for UK student loan interest. This page only uses it to convert between real and nominal; for how it sets the interest rate on each plan, see how student loan interest works.
Nominal can rise while real falls
Because interest keeps adding to the nominal balance, that headline number can climb every single year of the loan while its real, inflation-adjusted value falls, since the interest rate is built from the same RPI figure that erodes the balance's purchasing power. For a plan charging RPI only that's a wash in real terms; for Plan 2 and Postgraduate loans charging up to RPI + 3%, the real balance can rise as well. Neither direction is a problem on its own. What decides the actual outcome is whether the balance clears before write-off, not which way the headline figure is moving. See when a loan is written off for that mechanic.
Longer plans erode further
Plan 5 runs for 40 years rather than 30. The same illustrative £50,000, deflated over the extra years, works out to roughly £10,022 in today's money — smaller again, simply because there's more time for prices to move. Comparing two plans on nominal figures alone, without accounting for how long each one runs, understates just how different their real-terms cost actually is.
Where this shows up on the calculator
The student loan repayment calculator shows year-by-year figures in today's money, so a projection for year 30 is directly comparable with your salary and spending today, rather than a nominal figure inflated by decades of price rises.