Since September 2022 maximum student loan interest rates have
been capped in line with the latest prevailing market rate
available at the time of setting the cap.
From 1 September 2023 to 30 November 2023, the maximum Plan 2,
Plan 5 and the PGL interest rate will be 7.3%, to take into
account the most recent increase in the prevailing market rates.
From 1 December 2023 the maximum Plan 2 and the PGL interest rate
is scheduled to revert to RPI+3%, and the Plan 5 interest rate to
RPI. Further caps will be implemented, if required, to reduce
student loan interest rates to align with the prevailing market,
and will be confirmed closer to the time.
- The prevailing market rate is not defined in law, nor does
any product on the market offer a direct “market rate” comparison
to student loans. The most appropriate market rate comparators
for student loans are the effective interest rates available on
unsecured personal loans, with the Bank of England’s effective
interest rate data (series CFMZ6LI (existing loans) and CFMZ6K9
(new loans)), being the most appropriate benchmark for student
loan interest rates. To determine the “prevailing” market rate, a
12-month rolling average is taken. As such, the prevailing market
rate has been defined as the minimum of the 12-month rolling
averages of the Bank of England’s effective interest rate data
series’ CFMZ6LI and CFMZ6K9.
- Where the Government considers that the student loan interest
rate is too high in comparison to the prevailing market rate, it
will reduce the maximum Plan 2, Plan 5 and Postgraduate Loan
interest rate by applying a cap for a set period of three months
(or longer, if the prevailing market rate remains below the
student loan rate at the next monitoring point). This is done by
amending Education (Student Loan) (Repayment) Regulations 2009.
The prevailing market rate used for setting a cap in a given
quarter is based on the latest available CFMZ6LI and CFMZ6K9
data, which is the data going up to 2 months prior to the start
of the quarter, e.g. the cap set for between May and August 2023
was based on the April 2022 to March 2023 data.
- Plan 2 borrowers will continue to repay 9% of their earnings
over the repayment threshold. The repayment threshold for Plan 2
ICR loans is £27,295 for FY23-24.
- Plan 2 ICR loans are those loans taken out for a course
starting between 1 September 2012 and 31 July 2023 (England), or
after 1 September 2012 (Wales)
- Postgraduate loan borrowers will continue to repay 6% of
their earnings over the repayment threshold. The repayment
threshold for Postgraduate loans is £21,000 for FY23-24.
- Postgraduate loans are those loans taken out for Postgraduate
level study.
- Plan 5 loans were introduced for Academic Year 2023/24,
available for undergraduate courses starting after 1 August 2023
(England only).
- Plan 5 loan borrowers are not due to come into repayment
until April 2026.
- Plan 1 ICR loans, i.e. loans taken out for a course starting
before 1 September 2012, are not affected.
