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Starting in the 2026-27 academic year, interest rates on certain student loans in England will be capped at 6%. This measure is intended to shield graduates from escalating inflation pressures linked to the conflict in Iran. The government announced that the cap will apply specifically to Plan 2 loans, issued in England from September 2012 to July 2023 and still available in Wales, as well as to postgraduate Plan 3 loans.
Baroness Jacqui Smith, the Skills Minister, explained that the decision to cap interest rates aims to “defend against the consequences of far-away conflicts in an uncertain world.” She acknowledged the anxiety caused domestically by the Middle East conflict and emphasized that while global shocks are uncontrollable, protecting borrowers within the UK is possible. The cap is designed to offer immediate relief to those most affected by what she called an “already unfair system,” while the government continues to assess the broader issues within Plan 2.
Currently, Plan 2 loans accrue interest based on the retail prices index (RPI) measure of inflation plus up to 3%, depending on the borrower’s earnings. The interest rates are revised annually in September, referencing the RPI from the previous March. Presently, the RPI figure from March 2025 stands at 3.2%, but the figure for March 2026 remains unpublished, though February 2026 saw it rise to 3.6%. This anticipated increase has prompted the government to impose the interest rate cap, continuing a practice it has employed before when inflation and interest rates rose sharply. Caps were previously set between July 2021 and February 2022, and again from September 2022 through August 2024, with the highest limit reaching 8%.
While the move has been welcomed by some, including Amira Campbell, president of the National Union of Students, who described it as a “huge win,” calls for further reform persist. Campbell urged additional actions such as reversing the freezes on repayment thresholds introduced in recent budgets, arguing that rising debt levels must be addressed comprehensively. Her message highlighted that while the government is beginning to recognize the inherent unfairness in the student loan system, more changes are necessary to ensure repayments keep pace with graduates’ incomes. Meanwhile, broader scrutiny of student loans continues, with parliamentary inquiries underway amid widespread dissatisfaction over current repayment terms
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