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Interest rate cap introduced to protect Plan 2 Student Loan borrowers

ended 07. April 2026

The government is capping the maximum interest rates on Plan 2 and 3 student loans at 6% from 1 September, for the 2026/27 academic year, it has been announced.

This measure will protect students and graduates in England and Wales from the potential of inflation pressures due to the situation in the Middle East.

This reform removes the risk of any temporary increase in inflation causing loan balances to compound at an unsustainable rate and is in line with actions taken in the past to secure stability in the student finance system.

Graduates with Plan 2 loans currently pay interest rates of between RPI and RPI plus 3%, depending on their earnings. Current students on Plan 2 and Plan 3 also attract an interest rate of RPI +3% while they are studying.

Interest on Plan 2 and 3 student loans will be capped at 6% instead of RPI+3% to protect borrowers. This will ensure no Plan 2 or Plan 3 borrower faces an interest rate of above 6%, protecting them from any short-term increase in RPI due to global shocks, such as temporary spikes in oil prices, outside the government’s control.

The repayment threshold for Plan 2 loans was increased to £28,470 in April 2025 – its first increase since 2021 – and it was increased again on 6 April this year, to £29,385.

Minister for Skills, Jacqui Smith, said: "We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not.

“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.”

  • What is your reaction to the measure?
  • Does it go far enough? 6% is still high interest.
  • Any other thoughts on student loans?

Responses asap.

2 responses from the Newspage community

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Editor
Michelle Lawson
Director at Lawson Financial
This will benefit new loans in the new academic year but the students feeling the most pain are those already in the system. Capping this from September is a start but it isn't far enough. What happens with the upcoming 5 months due to the Middle East crisis and the spiralled debt to date. Most students owe significantly more than they have borrowed with monthly repayments not touching the interest payments let alone the balance.
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Editor
Graham Nicoll
Financial Planner, Chartered FCSI at NCL Wealth Partners
This is a helpful short-term safeguard that limits volatility and gives borrowers more certainty. Although it does not go far enough as 6% is still relatively high, and many borrowers will continue to see their balances grow, both while they study and after graduating.

This highlights a deeper issue in that the system is complex, opaque, and often feels punitive. High interest rates combined with long repayment terms mean many graduates view the loan more like a graduate tax than a conventional debt. Longer-term reform should focus on simplifying the system, improving transparency, and reconsidering whether interest should play such a large role at all, particularly given the public benefit of higher education.