New Interest Rate Cap Shields Plan 2 Borrowers

The government will cap interest on Plan 2 and Plan 3 student loans at 6% from 1 September 2026. This change applies for the 2026/27 academic year.

Scope of the cap

The ceiling replaces the previous RPI plus 3% approach for affected loans. It ensures no Plan 2 or Plan 3 borrower faces an interest rate above 6%.

Graduates with Plan 2 currently pay interest that ranges between RPI and RPI plus 3%. Students on Plan 2 and Plan 3 normally attract RPI plus 3% while studying.

Protection from global shocks

The move aims to shield borrowers in England and Wales from short-term inflation spikes. Officials cited risks from the situation in the Middle East and related energy price volatility.

The New Interest Rate Cap Shields Plan 2 Borrowers from temporary rises in RPI. It prevents loan balances compounding at unsustainable rates after sudden inflation increases.

Timing and calculation

Interest rates for student loans are fixed by academic year. Rates run from 1 September to 31 August and use the RPI figure to March prior.

This cap was announced ahead of the confirmation of interest rates for the 2026/27 year. The relevant RPI reference month is March 2026.

Who benefits and wider protections

Low earners remain protected by income-contingent repayments. Outstanding balances may be written off at the end of the repayment term.

The government framed write-offs as an investment in skills and the economy. This change joins other measures intended to support graduates and taxpayers.

Recent and planned reforms

• Repayment threshold for Plan 2 rose to £28,470 in April 2025.
• The threshold increased again to £29,385 on 6 April 2026.
• Means-tested maintenance grants return from the 2028/29 year, offering up to £1,000 of non-repayable support.
• A target aims for two thirds of young people to take high-quality apprenticeships, higher training, or university by age 25.

Political context

Jacqui Smith, the Minister for Skills, said the government acted to protect borrowers from overseas shocks. She described the cap as immediate support for those most exposed.

The Prime Minister outlined complementary measures. These include cutting energy bills, extending the fuel duty cut, supporting heating oil users, and investing in clean British energy.

Filmogaz.com will continue to follow updates as the government finalises rates for the coming academic year.