The Department for Education (DfE) has announced a change to
maximum Plan 2 and Plan 3 student loan interest rates.
From 1 January 2022 until 28 February 2022, the maximum interest
rate applied to Plan 2 Income Contingent Repayment (ICR) student
loans and the interest rate applied to Postgraduate loans will be
capped in line with the prevailing market rate for comparable
unsecured personal loans, which have recently reduced. From 1
March 2022, the maximum Plan 2 and the Postgraduate loan interest
rates are expected to revert to RPI +3%.
The Government regularly monitors the interest rates set on
student loans against the interest rates prevailing on the market
for comparable loans. Following a decline in the prevailing
market rate, the Government will temporarily reduce the maximum
Plan 2 and the Postgraduate loan interest rate in line with the
prevailing market rate. The reduction will be 0.1 percentage
point on the maximum student loan interest rate to reflect the
average market rates during the preceding monitoring period.
- The maximum Plan 2 ICR student loan interest rate and the
Postgraduate loan interest rate will be 4.4% between 1 January
2022 until 28 February 2022.
- The maximum Plan 2 ICR student loan interest rate and the
Postgraduate loan interest rate is expected to revert to 4.5%
(RPI +3%) from 1 March 2022.
Interest rates on Plan 2 ICR student loans vary by income. Where
the applied interest rate is already below the level of the cap,
the interest rates will be unaffected.
- The SoS is required by section 22(4) of the Teaching and
Higher Education Act 1998 (THEA) to ensure that student loan
interest rates are either below the prevailing market rate, or no
higher than the prevailing market rate if the loan offers better
terms and conditions.
- The Department for Education and the Welsh Government have
confirmed the change following a decrease in the prevailing
market rate.
- Plan 2 borrowers will continue to repay 9% of their earnings
over the repayment threshold. The repayment threshold for Plan 2
ICR loans remains at £27,295 for FY21-22.
- Plan 2 ICR loans are those loans taken out for a course
starting after 1 September 2012 (England and Wales).
- Postgraduate loan borrowers will continue to repay 6% of
their earnings over the repayment threshold. The repayment
threshold for Postgraduate loans remains at £21,000 for FY21-22.
- Postgraduate loans are those loans taken out for Postgraduate
level study.
- Plan 1 ICR loans, those loans taken out for a course starting
before 1 September 2012 are not affected.
- By “RPI” we mean the percentage increase between the retail
prices all items index published by the Office for National
Statistics for the two Marches immediately before the
commencement of the academic year.
