Immediate response by the IFS to the announcement of a 6% cap on student loan interest rates

The government has today announced that interest rates on student loans issued to English students will be capped at 6% next academic year.

Kate Ogden, Senior Research Economist, said: 

“In anticipation of a possible spike in inflation as a result of events in the Middle East, the government has today announced that interest rates on student loans issued to English students will be capped at 6% next academic year. If the March 2026 figure for RPI inflation comes in at more than 3% – as seems likely – this cap will reduce the interest rate applied to outstanding Plan 2 student loans held by higher-earning graduates who are subject to an interest rate of up to RPI plus 3%. It will only reduce actual loan repayments in the long run from the roughly third of graduates that can expect to repay their Plan 2 loans in full. If, for example, March RPI came in at 4%, the cap might benefit the highest-earning graduates by an average of around £500 over their lifetime. It will do nothing for graduates who are lower-earning currently who will still see their interest rate set at RPI and therefore likely below the new cap.”