The Department for Education has confirmed its annual adjustment to student loan terms, with new interest rates and repayment thresholds taking effect from September 1. The update covers undergraduate and postgraduate loans, revised repayment thresholds for Plan 1 borrowers, and updated terms for older Mortgage Style Student Loans.
Student loan interest rates are pegged to the Retail Price Index (RPI) from March each year, establishing the baseline applied every September. Depending on the payment plan, interest is set at RPI or up to RPI plus three per cent.
Baseline RPI set at 4.1%
In the latest update, the government confirmed that the baseline RPI figure for the coming year is 4.1 per cent, a notable shift from last year's rate of 3.2 per cent. The Department for Education has also revised repayment triggers, directly impacting Plan 1 loan holders.
Plan-by-plan breakdown
Plan 1 Student Loans: The applicable RPI rate is now 4.1% for the period September 1, 2026 to August 31, 2027. The interest rate for Plan 1 income-contingent repayment student loans is RPI (4.1%) or the Bank Base Rate + 1% (currently 4.75%), whichever is lower. The maximum interest rate on Plan 1 Income Contingent Repayment Loans during this period will be 4.1%. Subject to any decrease in the Bank base rate from September 1, the interest rate will be set at RPI 4.1%. The repayment threshold for Plan 1 loans will rise to £28,005 from April 6, 2027 to April 5, 2028, up from £26,900.
Plan 2 Student Loans: The applicable RPI rate is now 4.1% for the period. Interest rates for Plan 2 income contingent student loans vary between RPI (4.1%) and RPI +3% (7.1%) depending on circumstances. The maximum interest rate applied to Plan 2 loans will be capped at 6% between September 1, 2026 to August 31, 2027. Interest rates are subject to any caps to reflect the Prevailing Market Rate.
Plan 5 Student Loans: The applicable RPI rate is now 4.1% for the period, subject to any caps to reflect the Prevailing Market Rate.
Plan 3 Student Loans: The applicable RPI rate is now 4.1% for the period. The interest rate for Plan 3 is RPI + 3% (7.1%). The maximum interest rate applied to Plan 3 loans will be capped at 6% between September 1, 2026 to August 31, 2027. This rate is subject to any caps to reflect the Prevailing Market Rate.
Monitoring advice
The Department for Education advises anyone affected to regularly monitor its website as the rates may change during the academic year.
