Analysis · The Guardian · 7 April 2026
Why is the UK government capping student loan interest and will graduates now pay less?: What It Means for Your Student Loan
Written by Zubair Arshed FIA, Chartered Actuary
Fellow of the Institute and Faculty of Actuaries
Actuarial Post Life and Health Actuary of the Year 2024
The government is reported to be capping the interest charged on student loans, and the obvious question is whether that puts money back in graduates' pockets. For most borrowers the honest answer is no, because repayments are set by your income, not your balance. Here is who genuinely gains and who sees no change at all.
This analysis responds to reporting by The Guardian. We recommend reading the original alongside it: Why is the UK government capping student loan interest and will graduates now pay less? ↗
What is actually being reported about the interest cap?
The headline points to the government limiting the interest rate applied to student loans. This is not a new invention. The Student Loans Company already operates what it calls a prevailing market rate cap, a rule that pulls your interest rate down when the standard formula would otherwise push it above the rates charged on comparable commercial loans. It was triggered repeatedly through 2022 and 2023 when RPI spiked into double digits and the uncapped Plan 2 rate would have exceeded 12%.
Without the full article, treat the specifics as a direction of travel rather than confirmed detail. What is confirmed is the mechanics of how interest normally works. Plan 2 charges RPI plus up to 3% on a sliding scale linked to income. Plan 5 charges RPI only. Postgraduate loans charge RPI plus 3% flat. Plan 1 and Plan 4 use the lower of RPI or Bank Rate plus 1%. A cap sits on top of all of this and clips the rate when market conditions demand it.