Students: Loans
The question
To ask the Secretary of State for Education, what assessment her Department has made of the potential impact of Plan 2 student loan interest rates on graduates’ outstanding loan balances over time; and whether these rates will be reviewed as part of future student loan policy development.
Answered by Josh MacAlister
Plan 2 loans were designed and implemented by previous governments.
Interest rates are applied at the Retail Price Index (RPI) only, then variable up to an upper limit of RPI +3% depending on earnings.This maintains the real value of repayments over a long loan term. As an additional borrower protection, interest rates on post-2012 loans are automatically capped by the prevailing market rate for comparable unsecured personal loans, ensuring borrowers are protected if market conditions change.
Interest rates do not impact monthly repayments made by student loan borrowers. Repayments are made at a constant rate of 9% above the earnings threshold, and this rate strikes a balance between affordability for graduates and fairness to taxpayers. For example, someone earning £30,000 will repay around £4 per month in the 2026/27 financial year under the repayment threshold of £29,385.
Those earning below the earnings threshold do not make repayments. Any outstanding loan, including interest built up, is cancelled at the end of the loan term with no detriment to the borrower, and debt is never passed on to family members or descendants.
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