Pre-2012 income contingent (ICR) student loans (“Plan 1 loans”) have an interest rate of either RPI (from the March prior to the September when the new interest rates are implemented) or the Bank Base Rate + 1%, whichever is the lower (this is known as the “low interest cap”). The low interest cap mechanism means that the interest rate on Plan 1 loans may change if the Bank Base Rate changes.
Currently the maximum interest rate for Plan 1 loans is 13.5% (RPI). However, as the Bank Base Rate + 1% is lower than this, the low interest cap is in place.
On 3 August 2023, the Bank Base Rate changed to 5.25%. In line with this, from 1 September 2023 the interest rate for Plan 1 loans will increase from 6% to 6.25%.
