Students have warned they are spending their housing deposits on savings to pay off student loans. The interest rate on Plan 2 student loans and postgraduate (Plan 3) loans will be capped at 6% from 1 September 2026, the Labour Party government has confirmed.
But one postgrad said she was shocked when she discovered how high interest rates were leading to ballooning debt. Plan 2 student loans apply to English students who started university between 2012 and 2022, and Welsh students who have started since 2012. Postgraduate, or Plan 3 loans, are for postgraduate students in England and Wales.
Lucy O'Brien told the Guardian: "I was shocked to see that the amount I still had to repay had risen from my initial total borrowing of £51,529 to £65,879. Though I had initially borrowed £11,570 and have repaid approximately £2,000, I still owed £12,737. My master’s loan, in particular, stood out – perhaps because I thought that after three years of consistent repayments, I would have at least made a dent in this smaller loan. Evidently not: though I had initially borrowed £11,570 and have repaid approximately £2,000, I still owed £12,737."
She calculated that if she continued to pay her master’s loan off monthly, assuming she stayed on the same salary and the cap remained at 6%, it would take her until mid-2034 to clear it, and she would hand over a total of approximately £7,000 in interest. "Essentially, my master’s degree would end up costing me more than £18,500," she said.
Lucy added: "But the reality is that it’s crippling us financially. I have many friends that, soon enough if not already, will be more than £100,000 in student loan debt."
Interest Rate Details
Plan 2 loan interest is set at RPI (Retail Prices Index) inflation plus 3% while studying. Afterwards, it moves to tiered rates starting at RPI, rising up to RPI plus 3% depending on what you earn. Plan 3 (postgraduate) interest is set at the same RPI measure plus 3%, both while studying and afterwards.
