Student Loan interest rates to INCREASE in September – what it means for you
The latest figures have been published, and Student Loan interest rates are set to increase later this year – despite the announcement of a cap. Here's what it means for you.
Over the past few months, the debate around Student Loan repayments has been hard to escape.
One of the big complaints people have had is that the interest rates are far too high, especially on Plan 2 loans. And later this year, they'll get even higher.
Student Loan interest rates are usually set each September using the inflation rate (the Retail Price Index, or RPI) from March of the same year. Last year, that figure was 3.2% – but today, it was announced that March 2026's rate was 4.1%.
Most Student Loan plans will see their interest rates increase as a result, but it won't necessarily mean you end up paying any more. Read on to find out exactly how it affects you.
Which Student Loan repayment plan are you on?
First things first: you need to know which Student Loan repayment plan you’re on to work out how you’re affected:
| You got your loan from... | You started uni between 1st September 1998 and 30th August 2012 | You started uni between 1st September 2012 and 31st July 2023 | You started uni on or after 1st August 2023 |
|---|---|---|---|
| England | Plan 1 | Plan 2 | Plan 5 |
| Northern Ireland | Plan 1 | Plan 1 | Plan 1 |
| Scotland | Plan 4 | Plan 4 | Plan 4 |
| Wales | Plan 1 | Plan 2 | Plan 2 |
If you’ve taken out a Postgraduate Loan in England or Wales, that’s Plan 3.
How are Student Loan interest rates changing?
Across the five Student Loan plans, there are a few different ways to calculate the interest rate, so we’ll go through them one by one.
Plan 1 Student Loans
- Interest will increase from 3.2% to 4.1%
Your interest rate is set at whatever is lowest between March’s RPI rate or the Bank of England (BoE) base rate plus 1%.
At the moment, the BoE base rate is 3.75%, so add 1% and you get 4.75%. Over the next year or so, experts expect the base rate to either hold still or increase.
In other words, March’s RPI rate of 4.1% is likely to remain lower than the BoE base rate, and so should be the Plan 1 interest rate for the whole year (September 2026 – August 2027).
Plan 2 Student Loans
- It depends on your salary
As you’ve probably heard throughout the Plan 2 debate, the exact interest rate on these loans depends on how much you earn.
It’s usually set at RPI plus up to 3%, with higher earners charged more. However, the government recently announced that from September 2026 – August 2027, the interest rate on Plan 2 and 3 loans will be capped at 6%.
Given that March’s RPI rate was 4.1%, this essentially means that the system will become RPI plus up to 1.9%. And with that in mind, whether your interest rate is going up or down depends on your salary.
Here’s a simple table to explain it for you:
| Salary* | Change from September |
|---|---|
| £44,300 or less | Interest rate will increase by 0.9 percentage points |
| £44,300 – £51,300 | Interest rate will increase to the 6% cap |
| £51,300 or more | Interest rate will fall to 6% cap |
*All salaries are approximate.
Remember that the current RPI rate in use is 3.2%.
So, for higher earners who are currently charged RPI plus 2.8% or more (roughly those earning £51,300 per year or more), your interest rate will fall to the cap of 6%.
If you earn between about £44,300 – £51,300, then your interest rate will rise. But, because of the 6% cap, it will increase by less than it would have done otherwise.
If you earn less than around £44,300, then your interest rate will also increase – but as it will still be lower than 6%, you won’t benefit from the cap.
And if you’re a current student with a Plan 2 loan, your interest rate is usually RPI plus the full 3% (currently 6.2%). But, with the cap, your rate will fall to 6%.
Plan 3 (Postgraduate) Student Loans
- Interest will decrease from 6.2% to 6%
Plan 3 is the only type of Student Loan where all borrowers will see their interest rate decrease in September.
The interest on these loans is set at RPI plus 3%, meaning it’s currently 6.2%.
Although RPI has increased, the government’s interest cap for Plan 2 and 3 loans means your rate will actually fall to 6%.
Plan 4 Student Loans
- Interest will increase from 3.2% to 4.1%
Like Plan 1 Student Loans, your interest rate is set at whichever is lowest between the Bank of England base rate plus 1%, or RPI.
As explained above, this means your interest rate should be 4.1% between September 2026 – August 2027.
Plan 5 Student Loans
- Interest will increase from 3.2% to 4.1%
Plan 5 has the most straightforward interest rate of all – it’s just set at RPI.
That means that between September 2026 – August 2027, your interest rate will be 4.1% (up from 3.2% this year).
How will the rise in Student Loan interest affect you?
Credit: Ubermensch Matt – Shutterstock
As much as we disagree with charging high levels of interest on Student Loans, it’s important to remember that it doesn’t have any impact on the size of your monthly repayments.
How much you repay each month is only affected by your salary, equating to 9% of your earnings over a threshold (or 6% on Plan 3). In other words, one person could have £100,000 of debt and another could have £10,000, but if they both earned the same amount, their monthly repayments would be equal.
However, a higher interest rate does mean your debt grows more quickly, and makes it less likely you’ll ever repay the balance in full.
A huge chunk of graduates will never repay their loans before the balance is wiped anyway, so for them, this news has no actual financial impact. But even among them, for many, it will have a psychological impact as they see their balances grow even faster.
Our comment on the Student Loan interest hike
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.
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.
However, with the interest rate set to rise later this year, yet more graduates will see their monthly repayments dwarfed by the extra debt added – and to a greater extent – making it even less likely they’ll repay in full before it’s eventually wiped. In our latest National Student Money Survey, 63% of respondents said they worry about their loan repayments, and today’s news will only add to their concerns.
It’s increasingly evident that the system is broken, and we’re calling on the government to make wholesale reforms to Student Loan repayments, including reducing the interest rate and raising the repayment thresholds.
Tom Allingham, Student Loans expert at Save the Student
Did you know you could be owed a Student Loan refund worth £100s?
