UK to cap student loan interest rates at 6% from September 2026

The UK government has announced a cap on student loan interest rates at 6% starting September 2026, aiming to shield borrowers from rising costs linked to global inflation pressures.

The decision comes amid concerns that ongoing conflict in the Middle East could drive inflation higher and increase repayment burdens for graduates.

The student loan system in England and Wales has faced sustained criticism, with Prime Minister Keir Starmer stating in February that he would explore ways to make it fairer.

Some lawmakers, including members of the ruling Labour Party, have accused the system of placing excessive financial strain on graduates through high interest rates and unfavorable repayment terms.

In a statement issued on April 7, the Department for Education said the cap would apply to plan 2 and plan 3 loans for the 2026 to 2027 academic year.

This will override the existing formula that ties interest rates to inflation and allows charges of up to the Retail Prices Index plus 3 percentage points.

The government said the intervention is intended to protect borrowers from short-term inflation spikes caused by global disruptions, ensuring graduates are not disproportionately affected by external economic shocks.

“Capping the maximum interest rate on plan 2 and plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system,” said Jacqui Smith, the skills minister in the Department for Education.

She added that the government would continue to review what she described as the “broken” plan 2 system to improve fairness.

Much of the criticism has centered on plan 2 loans, which apply to students who started university between September 2012 and July 2023 and are held by about 5.8 million borrowers. Tuition fees are currently capped at £9,535 in England and Wales.

Under the existing system, graduates with plan 2 loans pay interest ranging from the Retail Prices Index to RPI plus 3%, depending on income levels, while students on plans 2 and 3 are charged RPI plus 3% during their studies.