Government said the cap on Plan 2 and postgraduate loans aimed to protect graduates from the risk of rising inflation due to the Iran war. Skills Minister Baroness Jacqui Smith said it wanted to “defend against the consequences of far-away conflicts in an uncertain world”.
There have been calls to lower the interest rate on Plan 2 student loans as part of a wider overhaul of the system. The cap will apply to Plan 2 student loans – which were issued in England between September 2012 and July 2023 and are still issued in Wales – for the 2026-27 academic year. It will also apply to Plan 3, or postgraduate, loans.
The Plan 2 interest rate is the retail prices index (RPI) measure of inflation plus up to 3%, depending on earnings. It is set every September, using the RPI in March that year. It is currently 3.2% (RPI in March 2025) plus up to 3%.
RPI for March 2026 has not yet been published, but it was 3.6% in February. Analysts believe the rate of inflation is on the rise because of the Iran war. This is not the first time a cap has been introduced. The government imposes caps when it thinks inflation, and therefore the interest rate, will grow too high. Caps were in place for Plan 2 loans between July 2021 and February 2022, then again from September 2022 to August 2024. The highest cap was 8%.
(BBC news, Image PA)
