The interest rate on plan 2 and plan 3 student loans will be capped at 6%, the Department for Education has announced.

Graduates with plan 2 loans currently pay interest rates based on the retail price index (RPI) measure of inflation, plus up to 3% based on their earnings. Current students on plan 2 and plan 3 loans attract an interest rate of RPI +3% while they are studying.

Plan 2 student loans cover those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales, and between 1 September 2012 and 31 July 2023 in England.

Plan 3 student loans cover postgraduate master’s or doctoral courses for borrowers in England and Wales.

With the prospect of the Iran war pushing up inflation, the skills minister Jacqui Smith said: “We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not.

“Capping the maximum interest rate on plan 2 and plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system.

“We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.”