In a landmark move aimed at easing the financial burden on graduates, the UK government has confirmed that student loan interest rates will be frozen at 0% starting October 2025.
The announcement, made by the Department for Education (DfE), comes after increasing pressure to reform the student loan system amid rising inflation and growing debt concerns.
The new policy affects millions of former students across England and Wales, primarily those under Plan 2 and Plan 5 repayment schemes. Here’s what every borrower should know about the upcoming UK Student Loan Interest Freeze 2025.
Why the Government Is Freezing Interest Rates
The freeze on student loan interest follows widespread criticism of the way interest accrues—especially during periods when graduates are actively making repayments but see their debt grow due to inflation-linked rates.
Previously, borrowers were charged interest based on the Retail Price Index (RPI) plus up to 3%, depending on income levels.
With inflation continuing to challenge household budgets, the government is acting to reduce long-term student debt and restore trust in the fairness of the student finance system.
Who Will Benefit from the Freeze?
The freeze primarily impacts borrowers on Plan 2 (students who started university in England or Wales after 2012) and Plan 5 (new borrowers starting from 2023 onward). These individuals were previously facing interest rates as high as 7–8% during inflation spikes.
Current vs Post-October 2025 Student Loan Interest Rates
| Plan Type | Current Interest Rate | Interest Rate from Oct 2025 | Who It Affects |
|---|---|---|---|
| Plan 1 | RPI + up to 1% | No change | Students who took loans before 2012 |
| Plan 2 | RPI + up to 3% | 0% | Students from 2012 onwards |
| Plan 5 | RPI-based (varies by income) | 0% | Students starting from September 2023 |
Borrowers on Plan 1 will not benefit from this change but remain on a lower rate compared to other plans.
Inflation Cap and Repayment Pause Proposals
Alongside the interest freeze, the government is reviewing additional safeguards, including:
- Inflation Cap: This measure would prevent interest from surging due to high inflation, bringing more predictability to long-term loan costs.
- Repayment Pause Scheme: Still under consultation, this would allow borrowers facing financial hardship (like unemployment or low income) to temporarily pause repayments without accruing interest.
These initiatives are part of a broader shift toward making student debt more manageable and transparent.
What Borrowers Should Do Now
Although the freeze takes effect in October 2025, borrowers are advised to:
- Review their repayment plan (Plan 2, 5, or 1)
- Track loan balances via the Student Loans Company portal
- Consider postponing voluntary repayments until after the freeze to maximize benefit
- Watch for official updates from Student Finance England or the Department for Education as new measures are rolled out
This is especially crucial for graduates nearing repayment thresholds or those considering lump-sum repayments this year.
The UK Student Loan Interest Freeze 2025 marks a major win for borrowers, particularly younger graduates facing steep interest charges.
With interest frozen at 0% for Plans 2 and 5, and further reforms like inflation caps and repayment pauses in the pipeline, the government is taking concrete steps to improve the student loan system.
These changes are expected to make higher education debt fairer and less stressful in the years to come.
FAQs
Who qualifies for the student loan interest freeze in 2025?
Borrowers under Plan 2 and Plan 5 repayment schemes will have their interest rates set to 0% starting October 2025.
Will this affect how much I repay each month?
No, monthly payments are still based on income thresholds, but total debt repayment could reduce over time.
Is the repayment pause confirmed?
Not yet. The government is considering a pause scheme for borrowers in financial difficulty, with details expected later in 2025.