Why Plan 2 and Plan 3 Student Loan Interest Is Capped at 6% From September 2026
5 min read Article Updated 2026-05-14
From September 2026, Plan 2 and Plan 3 (postgraduate) student loan interest is capped at 6% for the year. The cap is automatic, but who actually benefits is narrower than the headlines suggest, and it makes no difference to monthly repayments either way.
What this means for you in one line. If you have a Plan 2 or Plan 3 loan and you are a high earner, you may save around £150 to £500 in interest charges over the year ahead. If you are on Plan 5, on Plan 1, or earning under the upper Plan 2 threshold, the cap does not change anything for you. Your monthly repayments do not change either way.
What the cap actually says
The Education Secretary set out the policy in a written ministerial statement (HCWS1489) in mid-April 2026, after the 7 April announcement. The wording is plain. No Plan 2 or Plan 3 borrower will face an interest rate above 6% for academic year 2026/27, instead of the usual RPI plus 3%.
Normally, the interest on Plan 2 and Plan 3 loans tracks the Retail Prices Index (RPI) for the year to the previous March. While studying, Plan 2 sits at RPI plus 3%. After finishing, the Plan 2 rate slides down based on income. The Plan 3 rate stays at RPI plus 3% throughout.
RPI for the year to March 2026 was 4.1% (ONS). The normal RPI-plus-3% formula gives 7.1% for 2026/27. The 6% cap pulls that down by 1.1 percentage points for one year, on any balance currently at the top rate.
Who actually benefits
The cap helps higher-earning Plan 2 graduates and everyone on Plan 3. It does not help low or middle-earning Plan 2 graduates, and that matters more than it sounds.
Most Plan 2 borrowers will never repay their loan in full. Repayments are 9% of income above the £29,385 threshold, and stop after 30 years. If a balance is going to be written off when the 30-year clock runs out, the interest accruing on it along the way changes nothing for the borrower.
The Institute for Fiscal Studies put it like this: "The cap will reduce interest rates for higher-earning graduates with Plan 2 loans who would otherwise have seen an interest rate above 6%, but will do nothing for lower-earning graduates."
On the size of the benefit, the IFS estimated that "if March RPI comes in at 4%, then this one-year interest rate cap might reduce expected lifetime repayments from a high earner with a typical Plan 2 loan by something in the region of £500 in today's prices." A real saving, but a narrow one.
What it looks like in pounds
Two examples, both assuming the cap binds at the full 1.1 percentage points.
A Plan 2 graduate earning around £55,000 with a £45,000 balance. At 7.1% they would accrue about £3,200 of interest over the year. At the capped 6%, they accrue £2,700. The cap saves them roughly £500 of interest for that year.
A Plan 3 (postgraduate) borrower with a £15,000 balance. At 7.1% they would accrue about £1,065. At the capped 6%, they accrue £900. The cap saves them roughly £165 of interest for that year.
These are one-year savings on accrued interest, not on what comes out of the borrower's salary each month. The IFS lifetime figure (~£500 in today's prices) is smaller than the headline saving, because interest compounds across the rest of the loan term, most Plan 2 graduates never repay their full balance, and future payments are worth less in present value terms. A borrower whose post-study rate already sits below 6% (because they earn under the upper £52,885 threshold) sees no change at all.
What does not change for Plan 5 students
Anyone who started a full-time English undergraduate course in or after September 2023 is on Plan 5. The Plan 5 rate is RPI only, no plus-3% loading at any income level. With March 2026 RPI at 4.1%, the 2026/27 Plan 5 rate is 4.1%, well below 6%.
The cap is structurally useful for Plan 5, it would catch any future RPI spike, but at this RPI level it does not bite. Plan 1 borrowers (mostly people who started before September 2012) are on a different system, and the cap does not change anything for them either.
Why the cap was introduced
The government has run a monthly review of Plan 2, Plan 5 and Plan 3 interest rates since 1 December 2023. There is a standing rule that the rate "must be below or equal to the prevailing market rate" derived from Bank of England data on unsecured personal loans. That is the background safety net, in place for over two years.
The new 6% cap goes further. The written ministerial statement framed it as a short-term protective measure. The cap removes "the risk of any temporary increase in inflation causing loan balances to compound at an unsustainable rate" and protects students and graduates from "the potential of inflationary pressures due to the situation in the Middle East."
In plain terms: if inflation runs hot again in 2026/27 the way it did in early 2026, Plan 2 and Plan 3 balances will not run away with it. The cap is a ceiling on one specific year's interest charge, not a permanent change to how the formula works.
What action borrowers need to take
None. The cap is automatic. From 1 September 2026, the Student Loans Company applies whichever is lower, the normal rate or 6%, with no application or paperwork. The cap does not affect:
- Monthly repayments, which are set by income, not the interest rate.
- The repayment threshold, which is set separately each year by the Department for Education.
- The maintenance loan amount, which follows the standard 2026/27 rates already published.
- Eligibility for any other student finance product (bursaries, grants, NHS bursary, extra support for disabled students).
The cap applies for one academic year only. The 2027/28 rate reverts to the normal RPI-linked formula unless the Treasury renews the cap. That is why the IFS framed it as protection against a single inflation shock, not a structural reform.
If a student is starting university in September 2026
New English undergraduates starting in September 2026 will be on Plan 5, not Plan 2. The cap does not directly change anything for them. Their in-study rate is RPI, currently 4.1%, well below the 6% cap.
What the cap does change is the precedent. There is now a stated upper limit on student loan interest, even if for now it has only been applied to the older Plan 2 and Plan 3 systems.
Frequently asked questions
Will monthly repayments go down because of the cap?
No. Monthly repayments are 9% of income above the threshold. They do not depend on the interest rate, so the cap does not change them.
Does the cap apply to Plan 5?
Not in any practical sense for 2026/27. Plan 5 interest is RPI only, currently 4.1%, well below the 6% cap. The cap would catch a future RPI spike, but at this RPI level it does not bite.
Will the cap be renewed for 2027/28?
It is announced for one academic year only. The 2027/28 rate would revert to the normal RPI-linked formula unless the government extends the cap closer to the time.
Does the cap affect existing student loan balances?
It affects the interest accrued on a borrower's balance during the 2026/27 year, not the balance itself. If the normal formula rate would have been above 6%, the lower interest charge means the balance grows more slowly during that year.
Where can a borrower see their current Plan 2 rate?
The Student Loans Company publishes current rates on the gov.uk repaying-your-student-loan pages. Statements update each September.
The short version
The 6% cap is a small, targeted intervention. It will save some higher-earning Plan 2 and Plan 3 graduates a few hundred pounds in real terms over their working lives, and removes the worst-case tail risk if RPI spikes again. For everyone else, Plan 5 borrowers, lower-earning Plan 2 graduates, it is a useful structural reassurance that there is now a stated ceiling on student loan interest, even if they are not the borrower it currently helps.
For a deeper dive into the figures, our Plan 2 interest rate guide explains how the formula works in detail, and our maintenance loan breakdown covers the parallel changes to the 2026/27 maintenance loan rates. For a side-by-side comparison of Plan 1, Plan 2, Plan 3 and Plan 5, see our guide to student loan repayment plans.
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