UK to freeze student loan interest at 6% from September 2026 amid inflation pressure
The UK government will cap student loan interest at 6% for one year from September 2026, a move ministers said will shield millions of borrowers from inflation-driven increases. Announcing the decision in London on 7 April 2026, officials confirmed the freeze applies to Plan 2 and postgraduate Plan 3 loans in England and Wales.
Skills Minister Jacqui Smith called the current rate-setting formula “broken” and said the cap responds to concerns about rising debts under the new government led by Prime Minister Keir Starmer. The one-year ceiling is designed to counter inflation pressures linked to geopolitical tensions, including in the Middle East, which the government said could push loan rates above the present 6.2% maximum.
Under the existing system, Plan 2 interest is tied to the Retail Price Index (RPI) with up to an additional 3% depending on income, reaching the top rate for higher earners, with a reference income level of £29,385. Officials cited a current configuration of 6.2% for higher earners (RPI at 3.2% plus 3%).
Rates are reviewed each September based on March RPI; a February RPI reading of 3.6% was also noted. Plan 2 loans were issued in England from 2012 to 2023 and continue in Wales, while the same RPI-plus structure applies to postgraduate Plan 3 loans.
Smith said the cap will protect vulnerable graduates from shocks outside their control, echoing temporary limits imposed during the 2021–2022 inflation spike, when rates were reported as high as 8%. Critics — including Starmer — have described the current loan system as a “debt trap,” arguing that compound interest can leave graduates repaying more than they originally borrowed.
Ministers framed the 6% ceiling as a stop‑gap that slows the pace at which balances grow rather than eliminating debt, offering borrowers predictability while broader reforms proposed by Labour are developed. The cap is set to run through to 2027, covering the next annual rate cycle for Plan 2 and Plan 3 borrowers in England and Wales.