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 9% (RPI). However, as the Bank Base Rate + 1% is lower than this, the low interest cap is in place.
On 15 December 2022, the Bank Base Rate changed to 3.5%. In line with this, from 12 January 2023 the interest rate for Plan 1 loans will increase to 4.5%.
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