Independent briefing · 8 minute read

How student loan interest works

Rates reset every 1 September from March RPI. What each plan charges now, what changes next, and why interest does not decide your monthly payment.

Editorial record

Last reviewed: 7 August 2026
Purpose: General information, independently produced

How the rate is set

Student loan interest rates are set once a year on 1 September, using the Retail Prices Index (RPI) figure from the previous March. Each plan then applies its own formula: Plan 5 charges RPI alone, Plan 1 and Plan 4 charge the lower of RPI or Bank Rate + 1%, the Postgraduate Loan charges RPI + 3%, and Plan 2 slides between RPI and RPI + 3% depending on your income.

Interest accrues from your first loan payment until the balance is repaid or written off. It changes the total you may repay and for how long, but, as explained below, it never changes what leaves your payslip each month.

The September cycle is not the tax year

Interest runs on academic years (1 September to 31 August). Repayment thresholds run on tax years (6 April to 5 April). Mixing the two timetables up is the most common error in coverage of student loan rates.

The current academic year uses an RPI figure of 3.2%. From 1 September 2026, rates switch to the RPI figure of 4.1%, published by the ONS.

Rates can also move during an academic year: the Bank Rate leg of Plan 1 and Plan 4 follows Bank of England decisions, and the government can apply caps (below).

Every plan’s rate, now and from September

Plan	Formula	Charged now (to 31 Aug 2026)	From 1 September 2026
Plan 1	Lower of RPI or Bank Rate + 1%	3.2%	4.1% or Bank Rate + 1%, whichever is lower
Plan 2 (after study)	RPI to RPI + 3%, rising with income	3.2% to 6.2%	4.1% to 6% (capped)
Plan 2 (while studying)	RPI + 3%	6.2%	6% (capped)
Plan 4	Lower of RPI or Bank Rate + 1%	3.2%	4.1% or Bank Rate + 1%, whichever is lower
Plan 5	RPI only	3.2%	4.1%
Postgraduate Loan	RPI + 3%	6.2%	6% (capped)

“Charged now” reflects the rules in force, last verified 27 August 2026. Plan 1 and Plan 4 figures assume the last verified Bank Rate of 3.8%; the RPI leg is currently the lower one, so a Bank Rate change only matters if it falls far enough to undercut RPI.

Plan 2: the income-based sliding scale

After you leave your course, Plan 2 interest depends on income. At or below £29,385 you are charged RPI only. At or above £52,885 you are charged RPI + 3%. Between the two, GOV.UK applies the addition in proportion to where your income sits in that band, halfway between the two figures means roughly half the maximum addition.

While you are studying, and until the April after you finish or leave, Plan 2 charges RPI + 3% regardless of income.

The policy cap is an academic-year rule. From 1 September 2026 the government has capped Plan 2 and Postgraduate Loan interest at 6%. Without it, the top Plan 2 rate would be 4.1% + 3% = 7.1%. The cap runs 1 September to 31 August, so describing it as a tax-year rule is wrong, and rates charged before that date are unaffected by it.

Separately, a standing “prevailing market rate” mechanism compares student loan rates with commercial loan rates each month and can cap them. GOV.UK's interest pages stated that this cap was not currently being applied when the rules were last checked (27 August 2026). It is a different mechanism from the academic-year policy cap above.

Plan 1 and Plan 4: the Bank Rate guard-rail

Plan 1 and Plan 4 charge whichever is lower: RPI, or Bank of England Bank Rate + 1%. With RPI at 3.2% and Bank Rate last verified at 3.8%, the RPI leg wins and borrowers are charged 3.2%.

Because Bank Rate can change at any Monetary Policy Committee decision, this rate is not locked for the academic year the way a pure-RPI rate is. From 1 September 2026, the RPI leg moves to 4.1%; Bank Rate + 1% would only take over if Bank Rate fell below 3.1%.

Plan 5 and the Postgraduate Loan

Plan 5 charges RPI with no income-based addition: 3.2% now, 4.1% from 1 September 2026. In real terms a Plan 5 balance does not grow, which is one half of the trade-off against its lower threshold and longer, 40-year term.

The Postgraduate Loan (England and Wales) charges RPI + 3% at every income: 6.2% now. From 1 September 2026 the uncapped formula would give 7.1%, but the academic-year cap holds it at 6%. The Department for Education's cap announcement calls this loan “Plan 3”, the official internal name for the same product.

Interest never changes your payslip

Repayments are set by income alone: 9% of pay above your plan's threshold (6% for the Postgraduate Loan). A higher interest rate does not raise your monthly deduction by a penny, and a lower one does not reduce it.

What interest changes is how long the deductions continue and the total you hand over before clearing the balance. And if you are heading for write-off anyway, accrued interest may never actually be paid, a large balance on a statement is not the same thing as money you will part with. That distinction drives the overpayment decision.

How interest is added, and how this site models it

Officially, interest is calculated daily and added to your balance monthly. This site's calculator approximates that by applying one twelfth of the annual rate each month, and it applies Plan 2's income scaling to your current modelled salary. It does not model the separate while-studying RPI + 3% period, and it holds the verified snapshot's rates constant into the future unless you change the advanced assumptions yourself.

Those simplifications and their consequences are documented on the methodology page. Outcomes are illustrative estimates, not personalised financial advice.

Official sources

Rates on this page follow the calculator's verified rules, last checked 27 August 2026 against:

To see what these rates mean for your own balance, including how much interest is projected to accrue before you repay or reach write-off, run your figures in the student loan calculator.

Related briefings

This is general information, not financial advice. Check GOV.UK for the official rules that apply to your circumstances.