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Student Loan Interest Rate Cap 2026: What Plan 2 and Plan 3 Borrowers Must Know

If you graduated between 2012 and 2023 on a Plan 2 student loan — or if you took out a postgraduate Plan 3 loan — the government just handed you some genuinely good news. On 7 April 2026, ministers confirmed that interest on Plan 2 and Plan 3 student loans will be capped at 6% from 1 September 2026. It won't change your monthly repayments. But it will slow the rate at which your balance compounds, and for higher earners who are on track to repay in full, it could save a meaningful amount of money over the life of the loan.

The timing is not a coincidence. With the Middle East conflict pushing up energy prices and inflation expectations, there was a real risk that RPI — the measure student loan interest is tied to — would spike later in 2026 and push rates well above 6% for the 2026/27 academic year. The government stepped in to put a ceiling on that risk.

This is one of those stories that sounds simple but has several layers that are worth understanding properly. What does the cap actually do? Who benefits most? What about Plan 5 loans? And what should you actually do as a result? This article covers all of it.

How Student Loan Interest Rates Work in the UK

Before you can understand what the cap changes, you need to understand how the interest system works — because it is genuinely confusing and most graduates don't have a clear picture of it.

Student loan interest in the UK is not like a bank loan or credit card. It is calculated daily on your outstanding balance, but it is income-contingent — meaning your monthly repayments are always a fixed percentage of your earnings above a threshold, not a fixed pound amount. You cannot be chased by debt collectors, and the loan is wiped out entirely after your repayment term ends (25 years for Plan 2 after you graduated, though the term can vary).

Plan 2 loans were issued to English students who started university between September 2012 and July 2023, and Welsh students who started from September 2012 onwards. The interest rate on Plan 2 is calculated based on Retail Price Inflation (RPI) plus an income-related margin:

• While you are studying, or if you earn under £29,385: RPI only
• If you earn between £29,385 and £52,885: RPI plus a sliding scale up to +3%
• If you earn above £52,885: RPI + 3% (the maximum rate)

Plan 3 (postgraduate) loans work similarly, with interest also tied to RPI plus up to 3%.

Plan 5 loans — issued to English students starting university from September 2023 onwards — are calculated differently and are not affected by this cap. Plan 5 rates are set at RPI only (not RPI+3%), so the cap was not needed for them.

What the 6% Cap Actually Does

Here is the key fact that many headlines have buried: the cap does not change your monthly repayments. It only affects the interest rate applied to your outstanding balance.

Under the income-contingent repayment system, you pay 9% of everything you earn above the repayment threshold (£29,385 from April 2026). Whether interest is 5%, 6%, or 8%, your take-home pay is unaffected. What changes is how fast your balance grows — or shrinks — behind the scenes.

The cap matters most in two scenarios:

Scenario 1: You are a higher earner who will repay in full. If your salary means you are on track to clear your entire student loan before the 25-year write-off, then every pound of interest added to your balance is a pound you will eventually repay. For this group, a lower interest rate directly translates into a lower total cost. Without the cap, a graduate earning above £52,885 with a £40,000 balance could have seen their interest accrual accelerate significantly if RPI spiked to 5% or above — potentially adding thousands of pounds to their total repayment. The cap stops that happening.

Scenario 2: You are a student currently studying (Plan 2 or Plan 3). While you are in education, your loan attracts interest at RPI + 3% regardless of income. This is the period when loan balances can grow fastest — you are not yet repaying, and interest is compounding. The cap protects current students from a worst-case inflation spike during this critical window.

Who benefits least? Graduates on lower or middle incomes who will never repay their full balance regardless — for them, the write-off after 25 years means the interest rate, within a reasonable range, has little practical impact. The IFS has made this point clearly: the cap primarily helps higher earners who are repaying quickly, and has limited benefit for lower earners who will see their loans written off.

The Numbers: What Could the Cap Save You?

Let's put some concrete figures on this, using realistic scenarios.

Assume RPI comes in at 4.5% for March 2026 (a plausible figure given energy price pressures). Without the cap, a Plan 2 graduate earning over £52,885 would face an interest rate of 4.5% + 3% = 7.5% for the 2026/27 academic year. With the cap, that rate is limited to 6%.

These are per-year savings for one academic year. If the government also applies a cap in subsequent years — which remains "under review" — the cumulative saving for someone who repays in full could be considerably larger.

When Will the Cap Kick In and What Happens Next?

The cap applies from 1 September 2026, which is the start of the 2026/27 academic year. It will not affect interest rates in the current academic year (2025/26), which runs until 31 August 2026.

The Office for National Statistics (ONS) will publish the official March 2026 RPI figure on 22 April 2026. That number will determine the actual interest rate for Plan 2 and Plan 3 loans from September — and it will confirm whether the cap bites or is largely irrelevant. If March RPI comes in at, say, 3% (unlikely given current conditions), then RPI+3% would be 6% anyway and the cap would have no practical effect. If it comes in at 4% or above, the cap actively reduces your rate below what it would otherwise have been.

There are a few other important context points to keep in mind:

The repayment threshold for Plan 2 increased to £29,385 from April 2026 (up from £28,470 in 2025). This means you pay 9% of earnings above £29,385 — so a small increase in the threshold also reduces how much you repay each month.

For Plan 2, the upper threshold above which the full RPI+3% rate applies has also been updated, moving to £52,885 from April 2026.

The Student Loans Company will update your account and correspondence ahead of September. You do not need to do anything to benefit from the cap — it applies automatically.

What Plan 5 Borrowers Need to Know

If you started university in England from September 2023 onwards, you are on a Plan 5 loan. This cap does not apply to you — but your situation is already structurally different in a way that offers some protection.

Plan 5 interest is set at RPI only, with no income-related addition. So even if RPI ran at 4.5% for March 2026, your interest rate would be 4.5% — versus 7.5% for a higher-earning Plan 2 borrower. The government's concern about a runaway rate specifically applies to the RPI+3% structure of Plan 2 and Plan 3, which is why those plans were targeted.

Plan 5 also has a longer repayment term of 40 years (compared to 25 for Plan 2) and a higher repayment threshold of £25,000. The IFS has calculated that the majority of Plan 5 borrowers will never repay their loans in full before write-off — meaning interest rates, while still important in principle, have less practical impact on what most Plan 5 borrowers will actually pay.

If you are uncertain which plan you are on, check your Student Loans Company online account at studentloanrepayment.co.uk — your plan type is clearly shown.

Should You Make Voluntary Overpayments on Your Student Loan?

The student loan interest cap will prompt some graduates to revisit a perennial question: is it worth overpaying your student loan?

The honest answer is: probably not for most people, and the cap doesn't fundamentally change that calculation.

The key variable is whether you are on track to repay your loan in full. If you will not repay it in full within your repayment term, overpayments are almost always wasted money — you are putting extra cash towards a balance that will eventually be written off regardless. Every pound of overpayment is money that could have gone into a Stocks and Shares ISA, your pension, or a house deposit.

If you are on track to repay in full — typically higher earners with smaller balances — the case for overpayment is stronger. In that case, think of overpayment like paying down any debt at your current interest rate. At 6%, paying down your student loan is equivalent to a guaranteed 6% return, which beats most cash savings accounts. However, it comes with one crucial difference from other debt: if your circumstances change dramatically (long career break, illness, change of career), overpayments cannot be clawed back, and the income-contingent structure means you retain some protection that a fully repaid loan removes.

A useful tool to work through your personal numbers: Martin Lewis's Student Loan Calculator on MoneySavingExpert.

If you are a higher earner and considering overpayment, speak to an independent financial adviser first — particularly if you have higher-rate employer pension contributions or ISA allowance you are not yet maximising. Those often offer better value than student loan overpayments even at 6%.

Frequently Asked Questions

Q: Will my monthly student loan repayments go down because of the 6% cap? A: No. Your monthly repayments are always 9% of your earnings above the threshold (£29,385 for Plan 2 from April 2026), regardless of the interest rate. The cap only affects how fast your outstanding balance grows, not what you pay each month from your salary.

Q: Does the 6% cap apply to my Plan 5 loan if I started university after 2023? A: No. Plan 5 loans are not included in the cap. However, Plan 5 interest is already set at RPI only — without the additional +3% that applies to Plan 2 and Plan 3 — so the cap was not deemed necessary for them. Check your Student Loans Company account to confirm your plan type.

Q: When will I know what my actual interest rate will be from September 2026? A: The ONS publishes the official March 2026 RPI figure on 22 April 2026. That number determines the rate applied from 1 September 2026. If RPI comes in above 3%, the cap will actively reduce Plan 2 and Plan 3 rates below what they would otherwise have been.

Q: I am currently studying. Does the cap protect me too? A: Yes. Current Plan 2 and Plan 3 students also attract interest at RPI+3% while studying, regardless of income. The 6% cap applies to current students as well as graduates, protecting anyone with a Plan 2 or Plan 3 balance from a rate above 6% in the 2026/27 academic year.

Q: Does this cap mean I should start making overpayments on my student loan? A: For most borrowers — especially those who will not repay their loan in full before write-off — the answer is still no. The cap reduces the cost of carrying the loan for higher earners, but does not fundamentally change the overpayment logic. Use MoneySavingExpert's student loan calculator to model your personal situation, and consider speaking to an independent financial adviser before making large voluntary repayments.

The Bottom Line

The 6% student loan interest cap for Plan 2 and Plan 3 borrowers is a genuinely useful policy change — one that protects millions of UK graduates from a potential inflation spike that was entirely outside their control. It doesn't change how much you repay each month, but it slows the growth of your balance and reduces the total cost for higher earners who will clear their loans in full.

The numbers that matter are the March 2026 RPI figure (due 22 April) and your current outstanding balance. If you are not sure which plan you are on, check your Student Loans Company account now. If you are a higher earner who has been wondering whether overpayments make sense, run the numbers using MSE's calculator and consider a conversation with an independent financial adviser before committing.

The one thing you don't need to do is panic. The cap takes effect automatically in September. Your repayments in the meantime are unchanged. And the longer-term story — the income-contingent safety net that means you only repay when you earn enough to do so — remains in place.

More broadly, this announcement is a useful reminder to review all your financial commitments whenever the government announces a policy change — not just the one that's directly in the headlines. The same inflationary pressures that prompted this cap are also affecting energy bills, council tax, and broadband costs in April 2026. If you have not done a full household bill review recently, now is a good time. Small wins across multiple areas — better savings rates, lower debt costs, reviewed subscriptions — add up faster than you might expect, and they compound just as reliably as interest does.