UK government caps student loan interest rates at 6% from September

Students and graduates on plans 2 and 3 will be capped at 6% from September 2026, the government has announced under new plans.

The temporary measure aims to protect graduates from the risk of rising inflation caused by the war in the Middle East.

The cap will be in place for the 2026 to 2027 academic year, which runs from 1 September 2026 to 31 August 2027.

It follows fierce criticism of the government over student loans being unaffordable, with some graduates leaving with more than £100,000 worth of debt.

Currently, students on plan 2 and 3 loans face an interest rate based on the retail price index (RPI) measure of inflation, plus up a sliding scale of additional interest depending on their income.

Those earning under £26,900 just pay interest linked to RPI. Those earning between £26,900 and £39,130 pay RPI plus up to 3%. Plan 2 borrowers earning over £51,245 are charged RPI plus 3%.

For those on Plan 3, repayment interest is set to RPI plus 3%.

Who will be affected?
The student loan interest rate cap applies to students and graduates on a Plan 2 or Plan 3 loan.

Plan 2 student loans cover undergraduate courses and Postgraduate Certificates of Education (PGCE) since September 2012 in Wales and between September 2012 and July 2023 in England.

Plan 3 student loans cover postgraduate courses for students in England and Wales.

The number of higher education borrowers making repayments to HMRC rose from 563,000 in 2006-07 to 3.3 million by 2022-23.

The total amount repaid has also steadily increased from £343.6m to 3.5 billion.

Will this save students money?

The new changes are a cap rather than a fixed interest rate. Which only helps higher-paid borrowers save money.

For example, if RPI rose to 4% in March and you were on the lowest income threshold, you’ll still pay 4% because the cap is set to 6%.

However, if you earned over £51,245 (which is RPI plus 3%), you wouldn’t be charged 7% interest; the 6% cap would kick in, saving you money.

Managing student loan repayments

A student loan repayment calculator can help you estimate how long it could take you to repay your total student loan.

If you’re thinking about making additional payments to your student loan, read our should I overpay my student loan Q&A for tips.

For prospective students, our student budgeting tips guide for more guidance on how to manage your finances while studying or doing an apprenticeship.