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World Economy
Apr 07, 2026

UK Government Caps Student Loan Interest at 6% to Shield Graduates from Rising Inflation

AI Summary
The UK government will limit the interest rate on Plan 2 and Plan 3 student loans to 6% from September 2026, a modest reduction aimed at protecting borrowers from expected inflation spikes, while repayment terms remain unchanged.

The UK government announced a modest concession for millions of graduates with Plan 2 student loans: a cap on the interest rate at 6% starting 1 September 2026.

The decision is presented as a safeguard against a possible surge in inflation linked to geopolitical tensions in the Middle East, rather than a full policy reversal.

The 6% ceiling will apply both to undergraduate Plan 2 loans and to postgraduate Plan 3 loans taken out by borrowers in England and Wales.

For many borrowers the cap trims the current 6.2% rate by 0.2 percentage points, meaning their debt will grow marginally slower; the repayment threshold of 9% of earnings above the annual limit remains unchanged.

Interest rates are normally set each academic year using the Retail Price Index (RPI), which currently sits at 3.2% and is expected to rise – the March 2026 RPI is due on 22 April and analysts anticipate a figure above the February rate of 3.6%.

Ministers say the cap “removes the risk of any temporary increase in inflation causing loan balances to compound at an unsustainable rate,” protecting borrowers from rates above 6%.

Prime Minister Keir Starmer has pledged to review the student‑loan system, and speculation persists that more extensive reforms could be announced later in the year.

The National Union of Students hailed the cap as “a huge win” but warned that without adjustments to the repayment threshold the relief will be limited.

Financial planner Ian Futcher of Quilter added that the cap offers “reassurance but not relief,” emphasizing the need for broader changes to ease graduate finances.