The Treasury Committee wades into the debate about student loans

Earlier this year the Department for Education (DfE) announced a 6% interest cap on Plan 2 student loans for one year from September 2026. The DfE press release claimed that the measure would “…protect students and graduates in England and Wales from the potential of inflation pressures due to the situation in the Middle East”, but the true impact of the change will be insignificant.

Shortly after the announcement was made, the March 2026 retail price index (RPI) was published. This sets the basis for 2026/27 interest on Plan 2 loans, which ranges from RPI to RPI+3%. The March RPI was 4.1%, so the maximum reduction in the interest rate was 1.1%. Plan 2 graduates with income of less than about £44,270 will see no benefit from the cap, as their loan interest rate is 6% or less. Even higher earners may not benefit if they do not clear their loan by the end of the 30-year repayment period.

The DfE rate cap was a move to counter growing criticism about the operation of student loans and, in particular, the former Chancellor’s 2025 Autumn Budget decisions to:

• Raise the income threshold for starting repayment on Plan 2 loans by 3.2% to £29,385 in 2026/27, but
• then freeze the threshold for the following three tax years, and then
• from 2030/31, link threshold increases to RPI rather than earnings. However, from February 2030, the RPI inflation calculation will be revamped, bringing it closer to the more widely quoted and generally lower consumer price index (CPI).

In July, the House of Commons Treasury Committee issued a damning report on student loans, saying that the government has “a moral obligation” to reverse the Budget decision to freeze the threshold at which student loans are repaid. It also suggested that the loan terms would be illegal, but for specific government exemptions.

Alas, the chances that the (new) government will take much notice of the Treasury Committee look slim. Outstanding student loans totalled £295 billion in March 2026, meaning even small downward payment adjustments run into billions. As the new university year begins, it is a reminder that student fee planning should not be ignored by parents – or grandparents.