The Department for Education has confirmed annual updates to student loan interest rates and repayment thresholds, affecting millions of graduates in England. The changes, announced under Andy Burnham's government, include new rates for undergraduate and postgraduate Income Contingent Student Loans, as well as updates to the repayment threshold for Plan 1 loans and the deferment threshold for Mortgage Style Student Loans.
These updates come amid growing criticism over the student loan system, with recent analysis revealing that today's graduates are repaying more than double the amounts paid under the pre-2012 Plan 1 system. The coalition government's decision to raise annual undergraduate tuition fees from £3,375 to £9,000 in 2012 led to the creation of Plan 2 loans, which ran until 2023.
Education Secretary Acknowledges Loan System Concerns
New Education Secretary Lucy Powell has stated that reviewing student loans is "very much at the top of my in-tray" as student groups, campaigners, and MPs pile on criticism over the repayment changes. The Treasury Select Committee has also called on the government to revoke its three-year freeze on the loan repayment threshold, a move expected to increase repayments for graduates by £300 a year.
A Department for Education spokesperson said: "We know the system we inherited is broken and unfair, and some graduates feel the weight of this more strongly. We want to make sure the student loans system works better for everyone and are considering our response to the Treasury committee's inquiry."
Plan 1 Student Loans: Key Changes
For Plan 1 loans, the applicable Retail Price Index (RPI) rate is now 4.1% for the period from September 1, 2026, to August 31, 2027. The interest rate for Plan 1 income-contingent repayment student loans is set at the lower of RPI (4.1%) or the Bank Base Rate plus 1% (currently 4.75%). This means the maximum interest rate on Plan 1 loans during this period will be 4.1%, subject to any decrease in the Bank base rate from September 1.
Additionally, the repayment threshold for Plan 1 loans will rise to £28,005 from April 6, 2027, to April 5, 2028, up from the previous £26,900. This adjustment aims to align repayments with inflation, though critics argue it may not be enough to ease the burden on graduates.
Plan 2 and Plan 3 Loans: Interest Rate Caps
For Plan 2 loans, the applicable RPI rate is also 4.1% for the same period. Interest rates for Plan 2 income-contingent loans vary between RPI (4.1%) and RPI plus 3% (7.1%), depending on individual circumstances. However, the maximum interest rate applied to Plan 2 loans will be capped at 6% between September 1, 2026, and August 31, 2027, reflecting the Prevailing Market Rate.
Plan 3 loans, which cover postgraduate loans, will see an interest rate of RPI plus 3% (7.1%). The maximum interest rate for Plan 3 loans will also be capped at 6% for the same period, subject to any caps to reflect the Prevailing Market Rate.
Plan 5 Loans and Future Implications
Plan 5 loans, introduced for new students from 2023, will have an applicable RPI rate of 4.1% for the period. This rate is also subject to any caps to reflect the Prevailing Market Rate, ensuring consistency across loan types.
These changes are part of the government's broader effort to reform the student loans system, which has been criticized for being unfair and burdensome. The government has pledged to consider responses to the Treasury committee's inquiry and work towards a system that benefits all graduates.
