Millions of university graduates in the UK are set to see the interest rate on their student loans rise from September 2026. The new rate, confirmed at 4.1%, is based on the Retail Prices Index (RPI) from March 2026, which is typically used to set annual student loan interest rates.
Which Loan Plans Are Affected?
Graduates on Plan 1, Plan 4, and Plan 5 student loans will see their interest rate increase from the current 3.2% to 4.1%. For those with Plan 2 or Plan 3 postgraduate loans, a temporary 6% cap will be in place from September, following widespread concern over rapidly growing debt.
Under the usual system, Plan 2 and Plan 3 loans are charged at RPI plus up to 3%, with higher earners paying more. However, many borrowers reported their debt increasing despite regular repayments. The 6% cap aims to alleviate this, but its impact is limited.
Repayment Thresholds
Graduates begin repaying Plan 2 loans when they earn over £29,385 per year, repaying 9% of income above that threshold. The debt is written off after 30 years. For Plan 1, the threshold is £26,900; Plan 4 (Scotland) is £33,795; Plan 5 is £25,000; and Plan 3 postgraduate loans have a threshold of £21,000.
Expert Analysis
Tom Allingham, Student Loans expert at Save the Student, commented: "While we welcomed the certainty given by the 6% interest cap on some Student Loans, it was always clear that it would have a limited impact – and today's announcement underlines that. Any Plan 2 graduate earning less than £51,300 per year will still see their interest rate rise in September, and only those earning more than about £44,300 will actually benefit from the 6% cap. Meanwhile, anyone with a Plan 1, 4 or 5 loan will see their interest rate increase by 0.9 percentage points, as no cap has been introduced for them."
Allingham added: "It should be noted that the interest rate on Student Loans has no impact on the size of monthly repayments: these are only determined by a borrower's salary, usually amounting to 9% of earnings above a threshold. The interest simply affects the overall level of debt and how long it takes to repay in full."
