Interest rate cap at prevailing market rate inserted for plan 2, 3 and 5 loans

They insert a new regulation 20B into the Education (Student Loans) (Repayment) Regulations 2009, which provides that "The Authority must substitute the prevailing market rate for the interest rate" on plan 2, 3 and 5 loans¹.

The instrument sets out its own commencement in two stages. Regulation 2(1) states: "The following provisions come into force on 16th January 2023", covering Part 1, regulation 4, regulation 22, regulation 25(13) and (15), regulation 27(4) and (5), and regulation 66¹. Regulation 2(2) states: "The remainder of these Regulations come into force on 6th April 2023"¹. The legislation.gov.uk commencement notes record regulation 2 as "in force at 16.1.2023" and the remainder as "in force at 6.4.2023"¹.

The regulations also rename the loan categories used in the 2009 Regulations, substituting "plan 2 loans" for "post-2012 student loans"¹. They define plan 1, 2, 3, 4 and 5 loans. A plan 1 loan is one taken out for a course beginning on or before 31st August 2012¹. A plan 2 loan is taken out for a course beginning on or after 1st September 2012¹. A plan 3 loan is paid under an enactment cited in tables 1 to 4¹. A plan 4 loan is paid under a listed enactment where the Scottish Ministers have determined repayments are collected by HMRC¹. A plan 5 loan is taken out for a course beginning on or after 1st August 2023¹.

The regulations also set out interest rate figures for earlier periods. The table in the instrument lists "1st July 2021 to 31st August 2021 | 5.3%" among the specified rates¹. The instrument also provides that a borrower is not required to repay any part of a plan 5 loan on or before 5th April 2026, and that a plan 5 loan is cancelled on the 40th anniversary of the date the borrower became liable to repay it, unless another sub-paragraph applies¹. The regulations extend to England and Wales, subject to provisions extending certain parts to Northern Ireland and Scotland¹.

Why it matters for households

The cap applies to borrowers with plan 2, 3 and 5 loans, which covers loans taken out for courses beginning on or after 1st September 2012 and, for plan 5, courses beginning on or after 1st August 2023¹. For those borrowers, the interest rate applied by the Authority is replaced by the prevailing market rate rather than the rate that would otherwise have applied¹. The change to the interest calculation takes effect from 16 January 2023 for the provisions listed in regulation 2(1), with the remainder commencing on 6 April 2023¹. The instrument also records specified rates for periods from 1st July 2021, including 5.3% for 1st July 2021 to 31st August 2021¹. Plan 5 borrowers are not required to repay any part of the loan on or before 5th April 2026, and the loan is cancelled on the 40th anniversary of liability to repay, unless another provision applies¹. How the prevailing market rate is determined for any individual borrower is not set out in the source.

What happens next

The provisions listed in regulation 2(1) came into force on 16 January 2023, and the remainder of the regulations come into force on 6 April 2023¹. No further commencement dates are reported in the source.