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Student loan interest capped at 6% for a year

1 min read

15:29UTC

Statutory instrument 2026 No. 743 caps Plan 2 and Plan 3 student loan interest at 6% APR from 1 September 2026 to 31 August 2027.

← Back to Debt ratio fell; borrowing missed by £2.3bn Jump to analysis ↓

EconomicDeveloping

Key takeaway

Balances grow more slowly; monthly repayments do not change at all.

The Education (Student Loans) (Repayment) (Amendment) Regulations 2026 capped interest on Plan 2 and Plan 3 student loans at 6% APR from 1 September 2026 to 31 August 2027, under regulation 3 of statutory instrument 2026 No. 743⁠¹.

Plan 2 covers most English undergraduates who started from 2012 onwards; Plan 3 covers postgraduate master's loans. Capping the rate slows how fast a balance grows and alters nothing about the monthly deduction, because repayment is set as a share of income above a threshold rather than by the size of the debt. A graduate on the same salary hands over the same amount either way.

So the cap lands on the Treasury's books rather than in anybody's pay packet. A slower-growing balance is a smaller amount to write off decades from now, which shows up in the accounting value of the loan book instead of in household cash this year. The providers those borrowers are studying at are running deficits of their own, on the regulator's count of what they filed.

Deep Analysis

In plain English

If you have a Plan 2 or Plan 3 student loan, the interest rate charged on it can rise and fall with inflation, and for a year from 1 September 2026, the government has capped that rate at 6%, even where the formula would otherwise charge more. This does not change your monthly repayment: that is worked out as a percentage of what you earn above a threshold, not from the interest rate. What changes is how fast your total loan balance grows if you are not paying enough to cover the interest.

Deep Analysis

Root Causes

UK student loan repayments are set as a fixed share of income above a threshold, not as a fixed monthly instalment tied to the balance or interest rate owed. That design is why capping the interest rate changes how fast the total balance grows over the loan's life, and what the Treasury eventually recovers or writes off, without changing what comes out of any borrower's pay packet this month.

The cap was announced in April 2026 in response to a projected spike in RPI, the inflation measure the uncapped rate is pegged to; without the cap, the rate could have reached 7.1% for the highest-earning graduates, whose rate is set at RPI plus up to 3 percentage points.

Sources:legislation.gov.uk

First Reported In

Update #3 · Debt ratio fell; borrowing missed by £2.3bn

legislation.gov.uk· 3 Sept 2026

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Different Perspectives

Conservative Party

Leader Kemi Badenoch said Labour will run out of money and proposed lifting defence to 3% of GDP, paid for from welfare. Shadow work and pensions secretary Helen Whately put those savings at £23bn, "just the start".

Reform UK

Treasury spokesman Robert Jenrick pledged £80bn a year of spending cuts by the end of the next parliament and claimed £30bn a year of interest savings. The Spectator judged that the sums still do not fully add up.

Centre for Policy Studies

The right-of-centre think tank argued on 4 October that Britain is not a low-tax country once workplace pensions and student-loan repayments are counted. Its comparison rests on 2019 data.

Institute of Economic Affairs

The free-market think tank argued on 28 September that alcohol, tobacco and landfill duties raised £5.2bn less than the OBR projected. That comparison is separate from the five-month borrowing overshoot.

Resolution Foundation

The centre-left think tank said on 8 September that about £1 in every £12 of public spending now goes on debt interest. In July it put headroom against the fiscal rules at about £10bn.

Audit Scotland

It reported on 17 September that three Scottish budgets planned ScotWind drawdowns and drew nothing each time. It warned that using one-off receipts to balance annual budgets can weaken spending control.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.