UK caps student loan interest

The UK government is stepping into one of the strangest corners of British higher education finance. On Tuesday, April 7, it said interest on Plan 2 and Plan 3 student loans will be capped at 6% from September 1 for the 2026–27 academic year. The change covers borrowers in England, and the government said it will also protect borrowers in Wales, where ministers have agreed in principle to match it (gov.uk; moneysavingexpert.com). That sounds technical. It is also very specific. Plan 2 loans are the main undergraduate loans for English students who started university between 2012 and 2023, and for Welsh students who started since 2012. Plan 3 is the postgraduate loan system in England and Wales. Under the normal rules, both are tied to the Retail Prices Index, with rates as high as RPI plus 3 percentage points. Right now, that means a headline rate of 6.2%, based on March 2025 RPI of 3.2% (moneysavingexpert.com; gov.uk). The reason for acting now is the number that is not out yet. Student loan interest for the next academic year is usually set using the previous March’s RPI figure, and the Office for National Statistics is due to publish the March 2026 number on April 22. February 2026 RPI was already running at 3.6%. Ministers said they were worried that fresh inflation pressure linked to the conflict in the Middle East could push that figure higher, and with it the interest charged to graduates (moneysavingexpert.com; gov.uk). So this is not a redesign of the student loan system. It is a one-year ceiling placed on top of the existing formula. If March 2026 RPI had come in at 3.2% again, the cap would barely matter. If it rises above 3%, the cap starts to bite, because RPI plus 3 would otherwise move above 6%. That is why the expected saving being discussed is modest. Reporting on the announcement says some borrowers would see rates lowered by about 0.2 percentage points rather than a dramatic cut (theguardian.com; bbc.com). The oddity is that a lower interest rate does not automatically mean lower monthly repayments. For these loans, repayments are driven by income, not by the size of the interest charge. Plan 2 borrowers repay 9% of earnings above a threshold, which rose to £29,385 on April 6, 2026. Interest changes the balance and affects whether a borrower ever clears the debt before it is written off. It does not change what most people pay each month through payroll (gov.uk; ifs.org.uk; moneysavingexpert.com). That gets to the real point of the move. The government is trying to stop balances from swelling faster if inflation jumps for reasons that have nothing to do with universities, wages, or graduates. It is also implicitly admitting that the Plan 2 system remains politically exposed. Ministers paired the announcement with another reminder that they raised the Plan 2 repayment threshold in April 2025 and again on April 6 this year, while saying broader reforms are still under review (gov.uk; commonslibrary.parliament.uk). The immediate date that matters is now fixed. Whatever the March 2026 RPI figure turns out to be on April 22, no Plan 2 or Plan 3 borrower covered by this policy will be charged more than 6% interest from September 1, 2026 (gov.uk).