Overview
- The government introduced a 6% cap on Plan 2 student loan interest in April as a response to rising projected rates and public pressure.
- Ministers told the Treasury Select Committee that the cap was a fiscal compromise needed to stop rates climbing to about 7.1% because of recent inflation shocks.
- Critics including the Institute for Fiscal Studies and student groups say the cap will chiefly cut costs for higher-earning graduates while lower-paid Plan 2 borrowers keep interest set at RPI and remain at risk of rising balances.
- More than 50,000 pieces of written evidence have been submitted to a parliamentary inquiry that is now examining repayment thresholds, interest rules, and whether the system treats borrowers fairly.
- Plan 2 loans cover students who started university between 2012 and 2023 and account for nearly 80% of outstanding higher education debt, and ministers argue the heavy subsidy of the scheme gives the state authority to change loan terms.