The Department for Education has released the updated interest rates for Income Contingent Student Loans for the 2025–2026 academic year, alongside forthcoming repayment thresholds. The rates, applied from 1 September 2025 to 31 August 2026, reflect the latest Retail Price Index (RPI) of 3.2%.
These adjustments affect undergraduate and postgraduate borrowers across all existing repayment plans, including Plan 1, Plan 2, Plan 3, Plan 5, and Mortgage Style Loans, and are subject to prevailing market rate caps.
Undergraduate and Postgraduate Loan Interest Rates to Remain RPI-Linked
For Plan 1 undergraduate loans (pre-2012), the interest rate will be fixed at 3.2%, based on the RPI, as it remains below the alternative formula of Bank Base Rate + 1%. This rate applies from 1 September 2025 and may adjust only if the Bank of England base rate drops significantly.
Borrowers on Plan 2 (2012–2023) will see variable interest rates ranging from 3.2% to 6.2%, depending on income. According to the Department for Education, students in full-time study and those within the first year post-completion will pay the maximum 6.2%, while others will see a sliding scale linked to earnings.
For Plan 5 (introduced in 2023), the rate remains tied to inflation only, with a zero real interest policy. This means the applicable interest will be 3.2%, with no additional percentage added. This model is designed to reduce long-term debt burden on new graduates.
Postgraduate loans (Plan 3), covering Master’s and Doctoral degrees, also follow the RPI model with a 3% additional rate, totalling 6.2% for the period. Mortgage Style Loans will attract the standard RPI rate of 3.2%, with no additional interest.
Revised Repayment Thresholds Take Effect From April 2026
The government also confirmed new repayment thresholds that will apply from 6 April 2026. For Plan 1 loans, borrowers will begin repayments when their annual income exceeds £26,900, an increase from the previous threshold. Plan 5 borrowers will face a repayment threshold of £25,000, reaffirming the government’s intention to collect repayments earlier in graduates’ careers under the newer loan system.
The deferment threshold for Mortgage Style Loans will be £41,613 from 1 September 2025 to 31 August 2026. Income thresholds for Plan 2 and Plan 3 loans remain under review and are expected to be published later.
According to the Department for Education, these measures are part of a continued effort to align loan conditions with inflation while ensuring the sustainability of the student finance system. While interest rates remain closely pegged to RPI, the changes in thresholds may have a tangible effect on borrowers, particularly recent graduates, as they begin or continue their repayment journeys in the coming financial year.
