PolicyLens

Methodology note

Cap Plan 2 student-loan interest: calculation note

Scenario assumptions behind the Cap Plan 2 student-loan interest estimate. The figures are illustrative and exclude unrelated Conservative pledges.

View main policy page: Cap Plan 2 student-loan interest

Central fiscal result

+GBP 2.0bn - Net fiscal impact in 2028-29

Low case: +GBP 0.5bn. High case: +GBP 5.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • Model Plan 2 interest capped at RPI from 2028-29.
  • Central fiscal cost is GBP 2bn annualised loan-impact equivalent.
  • Baseline includes DfE cap at 6 percent for 2026-27.
  • Plan 5 loans are not changed centrally.

Affected population

  • Affected population is borrowers with Plan 2 student loans.
  • Direct gains are larger for higher earners and larger balances.
  • Monthly repayments mostly do not change immediately.
  • Taxpayers bear lower eventual loan receipts.

Gross impact

  • Central cost: GBP 2bn annualised loan-subsidy effect.
  • Low case assumes lower RPI and more write-offs anyway.
  • High case assumes high balances and higher graduate earnings.
  • No enrolment or productivity effect is booked.

Fiscal build-up, central case

  • Lower student-loan interest receipts: +GBP 2.1bn
  • Higher graduate consumption receipts: -GBP 0.1bn
  • Administration costs: GBP 0.0bn
  • Accounting revaluation risk: GBP 0.0bn

Central net impact: +GBP 2.0bn in 2028-29.

Behaviour and pass-through

  • Low case assumes many balances are written off regardless.
  • Central case follows IFS distributional logic with moderate fiscal exposure.
  • High case assumes more borrowers repay enough to benefit.
  • Graduate labour supply effects are likely small.
  • Policy is not assumed to increase human capital.

Phasing

  • 2026-27: +GBP 0.4bn. Preparation or partial implementation.
  • 2027-28: +GBP 1.4bn. Main ramp-up year.
  • 2028-29: +GBP 2.0bn. Target-year central estimate.
  • 2029-30: +GBP 2.2bn. Continuation at steady-state assumptions.

Main source groups

  • con-plan-2026: Conservative live policy page; used to identify current pledge wording.
  • con-student-2026: Conservative student-loan announcement; used for Plan 2 and apprenticeship scenarios.
  • student-loans-gov-2026: DfE loan-interest announcement; current Plan 2/3 cap and thresholds.
  • ifs-student-loans-2026: IFS Plan 2 analysis; distributional and fiscal caution.
  • obr-efo-mar-2026: OBR March 2026 forecast; fiscal and macro baseline.
  • lochner-monge-2016: Student-loan repayment; informs behavioural and incidence assumptions.
  • dynarski-scott-clayton-2013: Student aid design; informs behavioural and incidence assumptions.