Plan 2 student loan interest rates capped at 6% in England

Baroness 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.”

She said the caps would “provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system” and that the government was “continuing to look at the broken Plan 2 system we inherited”.

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

Amira Campbell, president of the National Union of Students, called it a “huge win” but said further change was needed – including reversing freezes to the repayment threshold announced in November’s Budget.

“This government have woken up to the unfairness of student loans, and are taking action to prevent our debts from spiralling further out of control,” she said.

“But this change cannot come alone. We still need to see the chancellor stick by the terms we signed at 17 years old, and raise the threshold in line with our incomes.”

Other campaigners have welcomed Tuesday’s announcement, but repeated their calls for wider reforms to the system.

Tom Allingham, from the Save the Student campaign group, said he was “pleased to see the government get ahead of a likely spike in RPI”, but added that ministers needed to “announce far more substantial changes that create a truly fair system”.

Oliver Gardner, founder of Rethink Repayment, also welcomed the cap but said the “temporary measure is by no means a solution to the student loans crisis”.

Nick Hillman, director at the Higher Education Policy Institute, said while the change would be welcomed by many, it was “just a stopgap” that was “unlikely to assuage the concerns” of many graduates.

Laura Trott, Conservative shadow education secretary, said the government was “tinkering around the edges, while graduates will still be paying interest above inflation”.