UK Sets 6% Cap on Student Loan Interest from September to Shield Graduates from Rising Inflation

Effective September, the UK will limit interest on Plan 2 and Plan 3 student loans to 6%, announced by ministers amid growing concerns that higher inflation could push repayments sharply higher for graduates.

Currently, borrowers on Plan 2 pay an interest rate equal to the Retail Prices Index (RPI) – presently 3% – plus up to an additional 3% once they earn more than £29,385. While studying, both Plan 2 and Plan 3 loans already attract RPI + 3%.

Plan 2 loans cover undergraduate courses and Postgraduate Certificates of Education taken out since 1 September 2012 in Wales and between that date and 31 July 2023 in England. Plan 3 loans apply to postgraduate master’s or doctoral programmes for borrowers in England and Wales.

Skills Minister Jacqui Smith linked the decision to global instability, noting that “the conflict in the Middle East is causing anxiety at home… Capping the maximum interest rate will provide immediate protection for borrowers, supporting those most exposed within this already unfair system.”

The repayment threshold will remain frozen at £29,385 for the next three years, until 2030, a policy that could raise annual repayments by up to £300 for many graduates.

Labour MPs have pressed the government to reconsider this freeze, arguing it will erode real‑term earnings as the threshold approaches the minimum wage by 2030.

National Union of Students president Amira Campbell welcomed the cap as “a huge win” for the more than 5 million people on Plan 2 loans, but warned that “the change cannot come alone” and called for a rise in the repayment threshold in line with incomes.

Prime Minister Keir Starmer has pledged to explore ways to make the student‑loan system fairer, echoing criticism from Conservative leader Kemi Badenoch, who described the scheme as a “debt trap” at “breaking point”.