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Saturday, 30 May 2026

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Student Loan Interest Rates Explained for 2026

Student loan interest for 2026 is based on RPI inflation, set at 3.2% for Plan 5. While the rate sounds important, what you repay each month depends on your income, not the interest, so for most graduates the rate is almost irrelevant.

Last reviewed:  · 2 min read

Key Facts

  • Plan 5 interest is RPI only — 3.2% for 2025/26
  • Plan 2 interest is capped at 6% for 2026/27
  • Repayments depend on salary, not the interest rate

How the rate is set

Student loan interest is generally pegged to the Retail Prices Index measure of inflation, updated each September using the previous March's figure. For the year to August 2026, RPI is 3.2%. Plan 5 charges RPI only, while Plan 2 can add up to 3% on top but is capped at 6% for 2026/27.

This means rates move with inflation rather than being fixed, so your balance grows at roughly the rate prices rise.

Why the rate often doesn't matter

Here's the part that surprises people: the interest rate has no effect on your monthly repayment. You always repay 9% of income above the threshold, regardless of how much interest has been added to your balance.

For the many graduates who never clear their loan before write-off, interest simply inflates a number that gets cancelled anyway. The rate mainly matters for high earners who'll repay the full balance, because for them more interest means more total repaid.

FAQ

Frequently Asked Questions

Does a higher interest rate mean bigger monthly repayments? +
No. Your monthly repayment is always 9% of income above the threshold, no matter what the interest rate is. A higher rate increases your total balance but doesn't change what comes out of your pay each month, so for most people it has no day-to-day effect.
Why is my student loan balance going up despite repayments? +
Because interest is being added faster than your repayments reduce the balance. This is normal and usually nothing to worry about — since repayments are income-based and the loan is written off eventually, a rising balance often makes no difference to what you actually pay over your lifetime.
Is student loan interest worse than a normal loan? +
Not in the way that matters. Although the rate can look high, you never face demands to clear the balance and repayments don't rise with it. A normal loan must be repaid in full with interest; a student loan only takes a percentage of income above a threshold and is written off after decades.

Topics covered

student loans interest rates rpi

This article is for informational purposes only and does not constitute financial advice. Always do your own research or speak to a qualified financial adviser before making financial decisions.