How Plan 2 student loan interest actually works

Plan 2 interest is built on RPI (the Retail Prices Index), one of the UK's measures of inflation. The rate resets every September, using the RPI figure from March of the same year. So each year's March inflation number sets the interest charged from that September to the following August.

For example, the rates taking effect in September 2026 are built on a March 2026 RPI of 4.1%. That makes the lowest possible Plan 2 rate 4.1%, and the highest 7.1%, before the cap described below.

One more change is coming. From February 2030, RPI itself is due to be reformed to match a lower inflation measure called CPIH. From then on, the inflation part of the rate is expected to run lower than it has historically.

While you are repaying, the rate slides with income. At or below the lower threshold (£29,385 for 2026/27), interest is RPI only. From there it rises in a straight line, reaching RPI plus 3% at an upper income bound (£52,885 for 2026/27). Between the two, every extra pound of income nudges the rate up slightly.

Before the April you were first due to repay - so during the course and just after it - the rule is different: interest is RPI plus the full 3 percentage points for everyone, whatever they earn.

Following an announcement in April 2026, Plan 2 interest is capped at 6% a year for academic year 2026/27 - from 1 September 2026 to 31 August 2027. Whenever the RPI-plus-taper sum works out higher than the cap, the cap wins. The same one-year cap applies to postgraduate loan interest.

The cap was announced for that single year, not for good. Once it lapses, the normal RPI-plus-taper rule resumes; our model applies it that way. The government could announce another cap for a later year - nothing has been announced - and any renewal would only lower the interest charged.

Put the two rules together and something counterintuitive happens. Your repayments are set by your salary alone: 9% of income above the repayment threshold, however big the balance is. The interest added is set by the balance and the rate. So in any year where the interest added is larger than the repayments taken, the balance grows - even though you are paying every month exactly as required.

That is common in the early years of a Plan 2 loan, and it is not a sign that anything has gone wrong. A growing balance does not raise your monthly payment by a penny. What it changes is how long the payments might run, and how likely the loan is to reach its write-off date with a balance still outstanding.

Here is the part the headline rate hides: Plan 2 interest does not change your monthly payment by a single pound. Repayments are 9% of income above the repayment threshold, whatever the balance and whatever the rate. Interest only changes how the balance moves over time - and so whether, and when, the repayments ever finish.

That leads to the biggest point about Plan 2 interest. A Plan 2 loan is written off (cancelled by law) 30 years after the first April repayments were due. A large share of borrowers never clear the full balance before that happens. For them, much of the interest that was added over the years is never actually paid by anyone - it simply vanishes with the cancelled balance.

Whether interest is a real cost to you depends on whether your balance is on course to be repaid in full. In futures where it is, paying extra avoids interest at the rates above, and the saving is real. In futures where the balance is heading for write-off, extra payments go towards a balance that was going to be cancelled anyway - and the interest they saved was never going to be paid.

Which kind of future you are in is exactly what nobody can know in advance: it depends on how your salary grows and what inflation does over decades.

Thresholds and rates change every year, and announcements can supersede the figures quoted here (which are the 2026/27 values used by our model). GOV.UK's guide to repaying your student loan and the Student Loans Company are the authoritative sources for the numbers that apply to you right now.