UK government caps interest rates on student loans
- Interest on Plan 2 and Plan 3 student loans will be capped at 6% for the 2026/27 academic year.
- The change aims to shield the finances of students from the effects of conflict in the Middle East.
- The repayment threshold for Plan 2 loans has also increased, and further reforms to student finance are being looked at.
The UK government has announced that from 1 September 2026, it will cap the interest rates on Plan 2 and Plan 3 student loans.
The Department for Education announced on Tuesday 7 April that for the 2026/27 academic year, the maximum interest rates on Plan 2 and 3 student loans will be capped at 6%.
It said that this measure was taken to ease the inflationary pressures caused by the ongoing conflict in the Middle East, stating that “graduates will not pay the price for a war which the UK has no direct involvement in”.
Currently, graduates with Plan 2 loans pay interest rates of between RPI and RPI plus 3%, depending on how much they earn. While they are studying, students on Plan 2 and Plan 3 loans also attract an interest rate of RPI plus 3% while they are studying.
The capping of the interest rate aims to protect these students from short-term increases to RPI due to global shocks outside of government control.
The interest that applies to student loans is fixed by academic year, from 1 September to 31 August the subsequent year, using the RPI value for the year to March prior (in this case, March 2026).
The capping of interest rates for the next academic year follows other changes the government has made to the student finance system, including increasing the repayment threshold for Plan 2 loans to £29,385.
The government said it would continue to look at possible reforms to the student finance system to make it fairer for students and taxpayers.
“Capping the maximum interest rate on Plan 2 and Plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system,” said Minister for Skills Jacqui Smith.
“We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.”
“More broadly, we’re bringing back maintenance grants and continuing to look at the broken Plan 2 system we inherited, and the wider student finance system, to make it fairer for students, graduates and taxpayers,” Smith said.
