Student loan interest in England capped at 6% in 2026–27: What you need to know

If you have a Plan 2 or postgraduate student loan, the government has confirmed that interest rates will be capped at 6% for the 2026–27 academic year, limiting how much extra you pay on your debt. 

Here’s everything you need to know. 

Which loans are affected?

The cap applies to: 

• Plan 2 loans – issued in England between September 2012 and July 2023 (still issued in Wales) 

• Postgraduate loans (Plan 3) 

Plan 2 loans are repaid once your income exceeds the repayment threshold, currently £29,385 per year for 2026–27 (up from £28,470 for 2025/2026). Repayments are 9% of income above that threshold. 

How Plan 2 interest is calculated

Interest on Plan 2 loans is based on the Retail Prices Index (RPI) + up to 3%, depending on your earnings. Rates are set each September using the RPI from March that year. 

The current rate is 3.2% + up to 3% (RPI March 2025).  

With inflation on the rise due to global events, the 6% cap ensures borrowers don’t face runaway interest charges. 

History of interest caps

The government has capped Plan 2 interest before, mainly when inflation threatened to push rates too high: 

• July 2021 – February 2022 

• September 2022 – August 2024 

The highest cap to date was 8%. 

How this affects borrowers 

Graduates earning above the repayment threshold could see hundreds of pounds saved in interest payments if inflation rises. 

A graduate earning £30,000 would normally pay more in interest under a higher RPI scenario but the 6% cap limits the cost. 

This cap provides immediate financial relief, but it’s only a temporary fix. MPs are reviewing the Plan 2 system, with many arguing it remains unfair and in need of a broader overhaul. 

The Plan 2 system has been criticised for years, with repayment thresholds frozen in previous Budgets, putting extra pressure on borrowers. 

What you need to know

If you have a Plan 2 or postgraduate loan, the 6% interest cap for 2026–27 is designed to protect you from rising costs. While it doesn’t solve all the issues with student debt, it’s a tangible measure that can help keep repayments manageable for the coming year. 

Analysis shows some graduates are voluntarily paying off loans faster, while others have reduced their take-home pay because of combined loan repayments and income tax. 

Postgraduate loans (Plan 3) are also affected by the cap, providing similar protections for those who took additional study loans.