The United Kingdom has introduced a new cap on interest rates for some student loans, giving borrowers greater certainty over how much interest can be added to their outstanding balances.
The Department for Education has confirmed that interest rates on Plan 2 and Plan 3 student loans will be capped at 6% for the 2026–27 academic year.
The measure will take effect from September 1, 2026, and run until August 31, 2027. It means eligible borrowers will not face an interest rate above 6% during the academic year, even if inflation pushes the normal rate higher.
The decision follows the government’s announcement in April 2026 to protect borrowers from possible increases in inflation. Under the existing system, Plan 2 and Plan 3 loans can normally attract interest linked to the Retail Price Index (RPI), with the maximum rate set at RPI plus 3%.
For the 2026–27 academic year, the applicable RPI rate is 4.1%. However, the 6% cap means borrowers covered by the measure will not be charged more than 6% interest.
What about Plan 1 loans?
Plan 1 loans will operate under a different arrangement. The interest rate is set at the lower of RPI (4.1%) or the Bank of England base rate plus 1%.
The government’s current guidance also shows that, from April 2026, the annual repayment threshold for Plan 1 is £26,900, while Plan 2 borrowers begin repayments above £29,385. Postgraduate loan borrowers have a threshold of £21,000.
Borrowers on Plan 1, Plan 2, Plan 4 and Plan 5 generally repay 9% of income above their applicable threshold, while postgraduate loan borrowers repay 6% of income above the threshold.
The changes are expected to provide greater protection for students and graduates against sudden increases in the cost of servicing their loans during the 2026–27 academic year.
The government says the cap is designed to provide stability and protect borrowers from temporary inflation shocks that could otherwise increase the interest charged on their student loan balances.
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