Interest rates on plan 2 and 3 student loans will be capped at 6% from September, following mounting criticism over the cost of repayments. The Government said the move would help deliver stability and protection for graduates amid the prospect of inflationary pressures from the Middle East war.

Minister for Skills, Jacqui Smith, 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.”

She added: “We’re acting now to defend against the consequences of far-away conflicts in an uncertain world. More broadly, we’re bringing back maintenance grants and continuing to look at the broken Plan 2 system we inherited, and the wider student finance system, to make it fairer for students, graduates and taxpayers.”

Interest on plan 2 loans is currently paid at a rate of between RPI and RPI plus 3%, depending on earnings. Current students on plans 2 and 3 also face an interest rate of RPI +3% while they are studying.

From September 1, interest on plan 2 and 3 student loans will be capped at 6% instead of RPI plus 3, in a bid to protect borrowers, the Government said.

Plan 2 student loans are those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since September 1, 2012, in Wales and between September 1, 2012 and July 31, 2023, in England.

Plan 3 student loans cover postgraduate master’s or doctoral courses for borrowers in England and Wales.

The change follows other measures the Government has taken to improve the student finance system and make it “fairer” for students, graduates and taxpayers. This includes increasing the repayment threshold for Plan 2 loans to £28,470 in April 2025, and again to £29,385 on April 6, 2026.