INTEREST rates for plan two and plan three student loans will be held at 6 per cent as of September, the government announced today.

Ministers announced the cap as higher inflation is expected to drive up repayments for graduates, following intense criticism over loans becoming a “debt trap” for many.

With inflation expected to increase even more due to the US war of aggression in Iran, skills minister Jacqui Smith said the government had the power to “protect” people from shocks in global markets.

She 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 faraway conflicts in an uncertain world.”