Plan 2 student loan interest rates capped at 6% in England
Plan 2 Student Loan Interest Rates Set at 6% in England
The next academic year will see the interest rate on certain student loans in England capped at 6%. This decision by the government aims to shield graduates from the financial strain of inflation, which has surged due to the ongoing Iran war. Skills Minister Baroness Jacqui Smith highlighted the need to “counter the effects of distant conflicts in a volatile global environment.”
Under the new cap, Plan 2 loans—issued in England from September 2012 to July 2023 and still active in Wales—along with postgraduate loans, will be affected. The Plan 2 rate is calculated using the Retail Prices Index (RPI) plus an additional 3%, based on income levels. Higher earners face faster debt growth, with the current rate at 3.2% (RPI March 2025) plus 3%, totaling 6.2% for the current year. The RPI for March 2026 has not yet been announced, though it stood at 3.6% in February.
Similar caps were previously applied to Plan 2 loans between July 2021 and February 2022, and again from September 2022 to August 2024. During these periods, the highest cap reached 8%. Baroness Smith stated, “The conflict in the Middle East has caused anxiety locally, and while global shocks are uncontrollable, protecting citizens is within our power.” She added, “These caps will ‘offer immediate relief to borrowers, especially those most impacted in this already inequitable system,’ and the government is ‘reviewing the flawed Plan 2 system we inherited.'”
“We know the Middle East conflict is causing anxiety at home, and while global shocks are beyond our control, protecting people here is not.”
Amira Campbell, president of the National Union of Students, called the cap a “major breakthrough” but emphasized that “more reforms are needed—like reversing income threshold freezes introduced in the November Budget.” She noted, “This government has acknowledged the unfairness of student loans and is taking steps to stop debts from spiraling, but this change alone isn’t enough. We still require the chancellor to align the threshold with our earnings.”
Other advocates supported the move but urged deeper changes. Tom Allingham of Save the Student said, “It’s positive the government is anticipating a possible RPI spike, but ministers need to “announce much more significant reforms to establish a fairer system.” Oliver Gardner from Rethink Repayment viewed the cap as “a temporary measure, not a solution to the student loans crisis.” Nick Hillman of the Higher Education Policy Institute described it as “a stopgap that may not fully address graduates’ concerns.”
“We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.”
Laura Trott, Conservative shadow education secretary, criticized the policy, stating, “The government is making superficial adjustments, leaving graduates to shoulder interest rates exceeding inflation.” An inquiry by MPs into England’s student loan system was launched in March amid widespread discontent over repayment terms. This followed the BBC’s discovery that the government compared student loan payments to a £30-a-month phone contract in a decade-old presentation to teenagers, with presenters instructed not to use the word “debt.” Sir Nick Clegg, former Liberal Democrat leader, called the tuition fee structure “a mess.” BBC analysis also revealed that voluntary debt payments by graduates have increased, with some reporting reduced salaries due to combined loan repayments and income tax.
