Student loan repayment changes confirmed after Rachel Reeves faced mounting pressure

Labour has confirmed that interest rates on Plan 2 and Plan 3 student loans will be capped at a maximum of 6 per cent from September 1, replacing the existing formula of RPI plus 3 per cent.

The change will apply for the 2026 to 2027 academic year and affect students and graduates in England and Wales.

Ministers said the move was driven by concerns that the conflict in the Middle East could push inflation higher through increased oil prices.

Officials stated that graduates should not face higher borrowing costs as a result of global instability beyond the UK’s control.

The reform is intended to prevent student loan balances from rising more sharply during periods of economic uncertainty.

Under the current system, Plan 2 borrowers are charged interest ranging from RPI up to RPI plus 3 per cent, depending on their income.

Skills minister Jacqui Smith said: "We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not."

She added that the Government was acting to support those "most exposed within this already unfair system".

The minister also described the Plan 2 structure as "broken" and said further reforms to student finance were being considered.

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