Chancellor sticks with 6% student loan interest cap

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner.

Interest rates jump for all student loan repayments as chancellor keeps 6% cap on interest set by Rachel Reeves.

In the latest annual update to interest rates for undergraduate and postgraduate student loans, the Department for Education (DfE) has confirmed the maximum interest rate applied to plan 2 and plan 3 loans will stay capped at 6% between 1 September 2026 to 31 August 2027.

Rachel Reeves's final months as chancellor were marked by controversy over plan 2 student loans, which charge interest at RPI plus up to 3% depending on earnings.

Following criticism of the system, the government announced a 6% cap on plan 2 and plan 3 student loan interest rates for the 2026-27 academic year.

The DfE has now confimred that the maximum interest rate will remain capped at 6% from 1 September 2026 to 31 August 2027, reaffirming the policy.

In the same announcement the DfE set out an update to interest rates for student loans, where it showed Interest rates increasing across all student loan plans for the 2026-27 academic year.

Plan 1

For graduates on plan 1 loans, those who attended university between 1998 and 2012, the rates were set at RPI 4.1% for the period September 2026 to August 2027.

The newly announced rate is up from 3.2% last year but remains below the 4.3% rate set for 2024-25 and the 6% rate charged for most of 2023-24.

Plan 2

Graduates on plan 2 loans, who attended university between 2012 and 2023, will be charged interest of between 4.1% and 6%, depending on income, after the government confirmed a 6% cap on the normal maximum rate of 7.1%.

The maximum rate is down from 6.2% in 2025-26 and 7.3% in 2024-25. Borrowers were also subject to a 7.3% prevailing market rate cap during part of 2023-24.

Plan 3

Loans taken out by students who pursued postgraduate-level studies, specifically master's or doctoral courses, will be charged 6% interest after the government capped the rate. Without the cap, borrowers would have been charged 7.1%. The rate was 6.2% in 2025-26 and 7.3% in 2024-25.

Plan 5

Graduates who started their courses from 2023 onwards are on plan 5 loans. Their interest rate will be 4.1%. The rate is up from 3.2% last year but below the 4.3% charged in 2024-25.