Plan 2 student loan interest rates capped at 6% in England

Student Loan Rates Fixed at 6% in England for 2026-27

The UK government has announced a cap on interest rates for certain student loans in England, setting them at 6% for the upcoming academic year. This decision targets Plan 2 and postgraduate loans, with officials claiming it safeguards graduates from inflationary pressures tied to the ongoing Iran conflict.

Skills Minister Baroness Jacqui Smith emphasized the need to “defend against the consequences of far-away conflicts in an uncertain world,” stating that the cap would “provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system.” The policy aims to mitigate the impact of global shocks on domestic graduates, even as inflation continues to rise.

Plan 2 loans, issued in England between September 2012 and July 2023, and still active in Wales, will see their interest rates capped at 6% starting in 2026-27. The same applies to Plan 3 loans, which are for postgraduate studies. The current rate for Plan 2 is based on the Retail Prices Index (RPI) plus up to 3%, with higher earners facing faster debt growth. This year, the rate has been 3.2% (RPI for March 2025) plus 3%, resulting in a 6.2% annual increase for top earners.

Analysts note that inflation has been climbing due to the Iran war, with the RPI at 3.6% in February 2026. The cap is not a new initiative; it follows previous measures between July 2021 and February 2022, and again from September 2022 to August 2024. During these periods, the highest rate reached 8%.

“We know that the conflict in the Middle East is causing anxiety at home. While the risk of global shocks is beyond our control, protecting people here is not,” Baroness Smith stated.

Amira Campbell, president of the National Union of Students, praised the move as a “huge win,” but urged more reforms. “This government has woken up to the unfairness of student loans, and is taking action to prevent our debts from spiralling further out of control,” she said. “But this change cannot come alone. We still need to see the chancellor stick by the terms we signed at 17 years old, and raise the threshold in line with our incomes.”

Other voices in the education sector welcomed the cap, though they stressed the need for broader changes. Tom Allingham of the Save the Student campaign noted the government’s response to a likely RPI spike but called for “far more substantial changes that create a truly fair system.” Oliver Gardner of Rethink Repayment acknowledged the measure as a step forward, yet described it as “by no means a solution” to the wider student loans crisis.

Meanwhile, Laura Trott, the Conservative shadow education secretary, criticized the policy as “tinkering around the edges,” arguing graduates will still face interest rates exceeding inflation. A parliamentary inquiry into student loans was initiated in March amid growing public discontent over repayment terms. The inquiry followed a BBC report revealing the government had compared student loan payments to a £30-a-month phone contract in a presentation to teenagers a decade ago, with presenters instructed to avoid using the term “debt.”

Sir Nick Clegg, former Liberal Democrat leader, previously called the tuition fee system a “mess.” BBC analysis also highlighted that graduates are increasingly voluntarily spending more to repay loans, while some have reported reducing salaries due to the combined burden of repayments and income tax.