The government has announced significant changes to student loan interest rates and repayment thresholds, affecting millions of borrowers across the UK. The Department for Education has confirmed its annual updates, with the Retail Prices Index (RPI) rising to 4.1% from September 1.
Key Changes to Repayment Thresholds and Interest Rates
For Plan 1 loans, the repayment threshold will increase to £28,005 from April 6, 2027, to April 5, 2028, up from the previous £26,900. This means graduates will need to earn more before they begin repaying their loans.
From September 1, 2026, the interest rate for Plan 1 loans will be set at 4.1%. This rate could decrease if the Bank of England cuts its base rate, but it will not exceed 4.1% during this period.
Plan 2 and Plan 3 Adjustments
For Plan 2 loans, borrowers will pay interest rates between 4.1% and 6% from September 1, 2026, to August 31, 2027, depending on their income. For example, on a £50,000 balance, interest added could range from about £2,050 at 4.1% to £3,000 at 6% over a year.
Plan 3 loan interest will fall from 6.2% to 6% due to a government cap. Meanwhile, Plan 5 interest rates will rise from 3.2% to 4.1%, potentially causing debt to grow faster.
Impact on Borrowers
All borrowers on Plans 1, 2, 3, or 5 will see more interest added to their balances initially, but only those who repay their loans in full are likely to actually pay more. The announcement advises borrowers to "monitor this website regularly as the rates may change during the academic year."
From September 1, interest on mortgage-style student loans will be 4.1%. Borrowers earning less than £44,311 may be able to defer repayments and should contact their loan administrator for more information.
Understanding Your Student Loan Plan
Your student loan plan is typically determined by where you lived and when you started university. Plans 1, 2, 4, and 5 cover undergraduate loans, while Plan 3 is for postgraduate loans.
Compulsory repayments only begin once your earnings exceed your plan's threshold, with a percentage deducted from earnings above it. Interest is added to your outstanding balance but does not directly affect monthly deductions. If your income falls below the threshold, repayments stop.
