Student Loan Interest Rates for 2026-27: Plan 2 Capped at 6%

What the Department for Education announced

The Department for Education confirmed its annual student loan interest update on 10 August 2026, setting the rates that will apply to income contingent loans from 1 September 2026 to 31 August 2027. The announcement fixes the applicable Retail Price Index figure at 4.1%, which is the March 2026 RPI reading that the student loan system uses each year. That single number drives the interest charged across every loan plan. For Plan 1 borrowers, who took out loans before 2012, the rate is the lower of RPI or the Bank of England base rate plus one percentage point. With the base rate currently producing a comparator of 4.75%, RPI at 4.1% is the lower figure and becomes the Plan 1 rate for the year, subject to any base rate reductions after 1 September. Plan 5 borrowers, covering English undergraduates who started courses from August 2023, pay RPI only and will therefore also be charged 4.1%. The announcement additionally confirmed that the Plan 1 repayment threshold will rise to £28,005 from 6 April 2027, giving pre-2012 borrowers a modest increase in the amount they can earn before repayments are deducted.

The 6% cap on Plan 2 and postgraduate loans

The most significant feature of this year's settlement is the 6% cap on the maximum interest rate for Plan 2 and Plan 3 loans, which the government announced on 7 April 2026 and which now takes effect for the full academic year from 1 September 2026 to 31 August 2027. Plan 2 loans, issued to English undergraduates who started courses between 2012 and 2023, normally charge interest on a sliding scale between RPI and RPI plus 3% depending on income. With RPI at 4.1%, that scale would run from 4.1% up to 7.1%. Under the cap, no Plan 2 borrower will be charged more than 6% regardless of earnings. The Institute for Fiscal Studies noted in its response to the April announcement that only borrowers earning at least £52,885, the higher interest threshold applying from April 2026, would otherwise face the maximum rate, so the cap primarily benefits higher earning Plan 2 graduates. Plan 3 postgraduate loans, which charge a flat RPI plus 3%, would have been set at 7.1% and are likewise held at 6% for the year. The cap saves affected borrowers up to 1.1 percentage points of interest accrual.

What each plan pays from 1 September 2026

The full picture for the 2026-27 interest year is as follows. Plan 1 borrowers pay 4.1%, with the rate able to fall during the year if the Bank of England base rate drops far enough for the base rate plus 1% comparator to go below RPI. Plan 2 borrowers pay 4.1% while earning at or below the lower interest threshold of £29,385, a tapered rate between 4.1% and 7.1% as income rises towards £52,885, and a capped maximum of 6% above that. Plan 3 postgraduate borrowers pay a capped 6% instead of the formula rate of 7.1%. Plan 5 borrowers pay 4.1%. All of these rates remain subject to the prevailing market rate cap mechanism, which can force further temporary reductions if commercial loan rates fall, as happened repeatedly between 2022 and 2024 when RPI spiked. Borrowers do not need to take any action: interest is applied automatically by the Student Loans Company and repayments continue to be collected through payroll at the same percentage of income above each plan's repayment threshold, since interest rates affect the loan balance rather than the monthly deduction.

Why the interest rate matters less than the threshold

For most borrowers the practical effect of this announcement is smaller than the headlines suggest, because income contingent repayments are calculated on earnings, not on the balance or the interest rate. A Plan 2 borrower earning £35,000 repays 9% of income above £29,385 regardless of whether interest is 4.1% or 6%. The interest rate determines how quickly the balance grows and therefore whether the loan is cleared before the write-off point, which is 30 years after repayment starts for Plan 2 and 40 years for Plan 5. Government modelling has consistently shown that a majority of Plan 2 borrowers never fully repay, meaning accrued interest is ultimately written off rather than paid. The borrowers for whom the 6% cap delivers real cash savings are those on track to clear the balance in full, typically higher earners and those with smaller outstanding balances. The threshold change matters more broadly: the Plan 1 threshold rise to £28,005 from April 2027 reduces annual repayments by 9% of the threshold increase for every Plan 1 borrower earning above it.

What happens next

The rates now confirmed run to 31 August 2027, and the next scheduled reset will be based on RPI measured in March 2027, announced in the summer of 2027. The Department for Education has stated that rates may be adjusted during the year in line with base rate changes for Plan 1 and prevailing market rate caps for Plan 2 and Plan 3, so borrowers should treat the published figures as the starting position rather than a guaranteed rate for twelve months. The 6% cap itself is explicitly time limited to the period ending 31 August 2027, and no commitment has been made to extend it. Borrowers considering voluntary overpayments should weigh the capped 6% rate against the statistical likelihood of their balance being written off, and should check their plan type and current balance through their online Student Loans Company account before making decisions. Employers and payroll teams should note the April 2027 Plan 1 threshold change for payroll software updates. Wider context sits in the money guides, comparison section, bills coverage and the news desk.

Frequently asked questions

What is the student loan interest rate from September 2026?

The applicable RPI rate is 4.1% for 1 September 2026 to 31 August 2027. Plan 1 and Plan 5 loans charge 4.1%. Plan 2 loans charge between 4.1% and 7.1% depending on income, capped at 6%. Plan 3 postgraduate loans are also capped at 6%.

What is the 6% cap on Plan 2 student loans?

Announced on 7 April 2026, the cap limits the maximum interest rate on Plan 2 and Plan 3 loans to 6% between 1 September 2026 and 31 August 2027, instead of the formula maximum of RPI plus 3%, which would have been 7.1%.

Will my monthly student loan repayments change?

No. Repayments are a fixed percentage of income above your plan's threshold, so the interest rate change does not alter monthly deductions. It affects how fast the balance grows and whether the loan clears before write-off.

What is the new Plan 1 repayment threshold?

The Plan 1 repayment threshold rises to £28,005 from 6 April 2027 to 5 April 2028. Borrowers repay 9% of income above that figure.

Which incomes trigger the higher Plan 2 interest rate?

From April 2026 the lower interest threshold is £29,385 and the higher threshold is £52,885. Interest tapers from RPI to RPI plus 3% between those figures, subject this year to the 6% cap.