The UK government has announced a temporary cap on student loan interest rates at 6% from September, affecting millions of graduates in England and Wales. The measure, which applies to Plan 2 and Plan 3 loans, is intended to shield borrowers from rising inflation exacerbated by the conflict in the Middle East.
Skills Minister Jacqui Smith said the cap would provide immediate protection for those most exposed within what she described as an “already unfair system.” The move follows months of criticism that student loans have become a “debt trap,” often leaving graduates repaying tens of thousands more than the original amount borrowed.
Graduates on Plan 2 loans currently pay interest based on the Retail Prices Index (RPI) plus up to 3% when earning above £29,385. Current students face RPI plus an additional 3% while studying. The cap will last one year, with the government acknowledging it is not a long-term solution.
The National Union of Students (NUS) welcomed the cap as a “huge win,” but its president, Amira Campbell, stressed that more action is needed, particularly regarding the repayment threshold frozen until 2030. The Conservatives accused Labour of “tinkering around the edges,” and shadow education secretary Laura Trott said the proposals did not go far enough.
The Welsh government has agreed in principle to apply the same cap, pending approval from the Senedd after next month’s election. Campaigners, including Save the Student and the Rethink Repayment group, described the cap as a positive step but called for more substantial reforms to the student finance system.
