On the 7 April the Government announced that we are capping the maximum interest rates on Plan 2 and Plan 3—postgraduate—student loans at 6% for the 2026-27 academic year, from the 1 September 2026 to the 31 August 2027.
This short-term protective measure removes the risk of any temporary increase in inflation causing loan balances to compound at an unsustainable rate, and will protect students and graduates from the potential of inflationary pressures due to the situation in the middle east.
Student loan interest rates are ordinarily set for each academic year by reference to the retail prices index value for the year to the preceding March. On that basis, interest rates for academic year 2026-27 would normally be determined using the outturn RPI figure for March 2026, which is due to be published on 22 April 2026.
The Government are therefore making this change ahead of student loan interest rates being confirmed for the coming 2026-27 academic year.
Under existing arrangements, borrowers on Plan 2 loans may be charged interest of up to RPI plus 3%. This maximum rate applies to borrowers in repayment earning above the upper interest rate threshold, which increased to £52,885 on 6 April 2026. For Plan 3 loans and Plan 2 students in study, a flat rate of RPI plus 3% applies to all borrowers.
Capping the maximum interest rate at 6% instead of RPI plus 3% will ensure no Plan 2 or Plan 3 borrower faces an interest rate above 6% for academic year 2026-27.
This follows changes this Government have already made to the student finance system we inherited to improve it and make it fairer for students, graduates and taxpayers. This includes increasing the repayment threshold for Plan 2 loans to £28,470 in April 2025—its first increase since 2021—and we increased it again on 6 April this year, to £29,385. We are also reintroducing targeted, means-tested maintenance grants from the 2028-29 academic year, providing students from low-income households with up to £1,000 extra support that will not need to be repaid to ensure those from the poorest families receive more support without increasing their debt.
The Government are continuing work to make the student finance system fairer for students, graduates and taxpayers.
[HCWS1489]