Have student loans been capped? The interest rate changes coming to borrowers

After weeks of pressure over exorbitant student loans in England and Wales, the government has announced rates will be capped.

The move is largely pre-emptive, the Department for Education said, to ensure inflation-linked rates don’t rise to unsustainable levels due to the war in Iran.

Under the new measure, interest on Plan 2 and Plan 3 student loans will be limited to 6%.

Currently, graduates on Plans 2 and 3 can pay rates of up to 3% above the Retail Price Index (RPI) measure of inflation.

There are concerns RPI could skyrocket along with other measures of inflation as the Iran war puts huge pressure on the global economy.

What is changing for people on Student Loans Plan 2 and 3?

This change will mean graduates on Plan 2 and Plan 3 do not pay interest rates of more than 6% in the coming academic year.

That applies to everyone currently on those plans, no matter which year they graduated.

It is expected to impact around 125,000 people.

Meanwhile, the repayment threshold for Plan 2 loans also increased on Monday from £28,470 to £29,385.

When do these changes start?

The measure will kick in when the new academic year begins on September 1, and last until August 31 next year.

While this cap will not currently apply beyond the 2026/27 academic year, the Department for Education said rates are being kept under review and any new measures will be set out in due course.

How will the interest rate cap affect me?

It depends how much you earn.

If you’re on Plan 2, your interest rate is variable depending on how much you earn – you can find out how much on the Gov.uk site here.

This new measure won’t affect you unless that variable rate is higher than 6% – if it is, you won’t pay more than 6% between September 1 this year and August 31 the year after.

What are people saying about this?

Jacqui Smith, the government minister for skills, said: ‘We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not.

‘Capping the maximum interest rate on Plan 2 and Plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system.

‘We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.’

But Laura Trott, the Conservative shadow education secretary, said Labour’s move was mere ‘tinkering around the edges’.

She said: ‘These proposals do not go far enough and they confirm Labour have no serious plan to stop graduates being ripped off.

‘Our New Deal for Young People will scrap real interest on student loans.

‘We will double apprenticeships and put an end to dead-end degrees, so young people have a real choice about their future when they leave school.’

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