The government has confirmed that interest on Plan 2 and Plan 3 student loans will be capped at 6 percent from September 2026, replacing the current formula that ties rates to the Retail Price Index (RPI) plus up to 3 percent.
The Change
Under the previous system, student loan interest could fluctuate significantly with inflation. During 2023, some graduates saw interest rates exceed 7 percent. The new flat cap of 6 percent provides more predictable repayment terms.
The change applies to both Plan 2 borrowers (those who started undergraduate courses in England from September 2012) and Plan 3 borrowers (those starting courses from 2023 onwards under the reformed system).
Impact on Students
The practical impact depends on earning trajectory. Monthly repayments are determined by salary, not the interest rate — borrowers repay 9 percent of earnings above the threshold. The interest rate primarily affects how quickly (or whether) the total balance is cleared before write-off.
For Plan 2 borrowers, the remaining balance is written off after 30 years. For Plan 3 borrowers, this extends to 40 years. The lower cap means the total amount repaid over the lifetime of the loan is likely to be lower than under the previous variable-rate system.
International Students
International students who are self-funding are not directly affected, as they do not take out UK student loans. However, EU and EEA students with Pre-Settled or Settled Status who access Student Finance England will benefit from the new cap.
