Interest rate cap for Plan 2, Plan 5 and Postgraduate student loans
The Department of Education has today announced that from 1 December 2023, the Plan 2, Plan 5 and Postgraduate loan (PGL) interest rates will be reviewed each calendar month and compared to the latest comparable prevailing market data available.
The Department of Education has today announced that from 1 December 2023, the Plan 2, Plan 5 and Postgraduate loan (PGL) interest rates will be reviewed each calendar month and compared to the latest comparable prevailing market data available.
The maximum interest rates applicable to Plan 2, Plan 5 and Postgraduate Loans (PGL) must be below or equal to the prevailing market rate. Where the interest rate on either Plan 2, Plan 5 and/or PGL is considered to be too high in comparison to the comparable prevailing market rate, the maximum applicable interest rate for the relevant plan type(s) will be capped for a set period of one calendar month (or longer, if the comparable prevailing market rate remains below the student loan rate at the next review point), as required.
Previously, we have adjusted interest rates on a quarterly basis where they needed to be capped to remain equal to or below PMR. The move to monthly monitoring simplifies this process.
The prevailing market rate is not defined in law, nor does any product on the market offer a direct “market rate” comparison to student loans. The most appropriate market rate comparators for student loans are the effective interest rates available on unsecured personal loans, with the Bank of England’s effective interest rate data (series CFMZ6LI (existing loans) and CFMZ6K9 (new loans)), being the most appropriate benchmark for student loan interest rates. To determine the comparable “prevailing” market rate in a given calendar month, a 12-month rolling average is taken from the period ending three months prior to the start of that month e.g., the comparable prevailing market rate for December 2023 is based on data for October 2022 to September 2023.
Further information
- A comparable for the prevailing market rate has been defined as the minimum of the 12-month rolling averages of the Bank of England’s effective interest rate data series’ CFMZ6LI and CFMZ6K9.
- Plan 2 loans are those loans taken out for a course starting between 1 September 2012 and 31 July 2023 (English-funded borrowers), or after 1 September 2012 (Welsh-funded borrowers).
- Plan 2 borrowers repay 9% of their earnings over the repayment threshold. The repayment threshold for Plan 2 loans is £27,295 for Financial Year 2023-24.
- Plan 5 loans (introduced in Academic Year 2023/24) are those loans taken out for a course starting on or after 1 August 2023 (English-funded borrowers only).
- Plan 5 borrowers will repay 9% of their earnings over the repayment threshold. Plan 5 borrowers are not due to come into repayment until 6 April 2026.
- PGLs are those loans taken out for Postgraduate Masters or Doctoral courses (English-funded and Welsh-funded borrowers).
- PGL borrowers repay 6% of their earnings over the repayment threshold. The repayment threshold for PGL is £21,000 for Financial Year 2023-24.
- Plan 1 and Plan 4 loans are not affected.