It’s the second time the government has intervened to protect student borrowers from rising interest rates. It first capped rates in June.

The Retail Price Index (RPI) measure of inflation each March is used to calculate interest on student loans for Plan 2 (undergraduates) and Plan 3 (postgraduates) borrowers.

This is for those students in England and Wales who took out a loan for a course starting on or after 1 September 2012 and currently stands at 4.5%.

It’s usually the RPI plus up to 3% which would mean these borrowers faced an eyewatering 12% interest rate in September.

By setting an interest rate of 6.3% rather than the expected 12% this will bring down the student loan interest rates by the largest amount on record. It will mean, for example, a borrower with a student loan balance of £45,000 would reduce their accumulating interest by around £210 per month compared to 12% interest rates.

This is on the total value of the loan, as monthly repayments do not change.

Interest rates only affect lifetime repayments for those who will repay their loans in full, or who come very close to doing so, high earners and those with small loan balances. See the government’s repaying your student loan guide for further information.

Andrea Jenkyns, minister for skills, further and higher, said: “We understand that many people are worried about the impact of rising prices and we want to reassure people that we are stepping up to provide support where we can.

“Back in June, we used predicted market rates to bring forward the announcement of a cap on student loan interest rates down from an expected 12% and we are now reducing the interest rate on student loans further to 6.3%, the rate applying today, to align with the most recent data on market rates.

“For those starting higher education in September 2023 and any students considering that next step at the moment, we have cut future interest rates so that no new graduate will ever again have to pay back more than they have borrowed in real terms.”

Monthly student loan repayments are calculated by income rather than interest rates or the amount borrowed. Unlike for commercials loans, repayments will stop for any borrowers who earn below the relevant repayment threshold.

A Student Loans Company spokesperson said: “The change in interest rates is automatically applied so customers don’t need to take any action. We encourage customers to use SLC’s online repayment service to regularly check their loan balance and repayment information, as well as ensure their contact information is up-to-date.”