The UK government has announced a cap on student loan interest rates at 6%, effective from September 2026, citing rising global inflation risks linked to ongoing conflict in the Middle East.

The cap will apply to “Plan 2” undergraduate loans and “Plan 3” postgraduate loans in England and Wales for the 2026–27 academic year. It overrides the existing formula that ties interest rates to the Retail Prices Index (RPI) plus up to 3 percentage points.

Officials said the move aims to shield borrowers from temporary inflation spikes that could otherwise push interest rates higher. Without intervention, rates were expected to rise beyond current levels due to global economic pressures.

The policy is expected to affect around 5.8 million borrowers, many of whom took out loans between 2012 and 2023. Under the current system, students accrue interest at RPI plus 3% while studying, with rates varying after graduation based on income.

Skills Minister Jacqui Smith said the cap would provide “immediate protection” for borrowers facing rising costs in what the government has acknowledged as an “unfair system.”

However, critics argue the measure offers only limited relief. Monthly repayments, which depend on income thresholds, remain unchanged, and concerns persist over high overall debt levels and frozen repayment thresholds.

The cap is expected to be temporary, lasting for one academic year, as the government faces growing pressure to undertake broader reforms to the student loan system.