Wealth Club: Students left paying more as government drops RPI for green subsidies but not Plan 5 student loans

Graduates already navigating the long tail of student debt may feel the rules are shifting against them once again. From April 2026, the government will move to a lower measure of inflation, CPI, when uprating renewable energy subsidies, a change designed to ease costs for households. But for those on Plan 5 student loans, interest will remain pegged to the typically higher RPI, sharpening concerns that they are being left behind.

At a time when early-career professionals are trying to balance rising living costs with saving for their future, this divergence in policy risks deepening the financial strain. While ministers are phasing out RPI where it reduces public spending, its continued use in student lending means graduates could face higher borrowing costs for decades, potentially limiting their ability to invest, save, and build long-term financial resilience.

Sharing her insights on this, Susannah Streeter, Chief Investment Strategist, Wealth Club, said:

”Already graduates were grappling under heavy debt loads linked to student loan repayment terms and now the unfairness seems even more stark given ministers have changed the repayment goalposts for other contracts. 

From April 2026, payments under the Renewables Obligation will be uprated using CPI, a lower, more modern measure of inflation. This will help contain the cost of the scheme for households. Yet student loans under Plan 5 remain tied to RPI, leaving borrowers paying higher interest on debts that may take decades to repay.  This is a policy double standard which shines yet another spotlight on how graduates are being treated.

 What is the Renewables Obligation?

The Renewables Obligation, launched in 2002, was designed to stimulate investment in renewable electricity. Generators earn Renewable Obligation Certificates (ROCs) for every megawatt-hour of power produced. Electricity suppliers must either buy ROCs to meet legal quotas or pay a “buy-out” fee into a government-managed fund. That fund is then redistributed to suppliers who supplied sufficient ROCs, increasing the effective revenue flowing to generators.

While the money passes through to suppliers, the government sets the rules and controls the inflation uprating. The state guarantees that renewable generators receive a reliable revenue stream, although these payments are funded by consumers via electricity bills.

Why households are winners but graduates are losing out

Lowering the rate of increase from RPI to CPI has a direct impact on household costs. The change reflects the government’s wider shift away from RPI, which is considered to be a more unreliable measure of inflation. CPI is now the standard across public spending programmes and newer energy schemes.

But while it could be seen as a win for households, who will see subsidy growth moderated, graduates appear to be on the losing side.  Plan 5 student loans remain firmly tied to RPI, currently 3.2% for September 2025 to August 2026. The Department for Education cites “consistency with existing plan types,” but this means students and graduates will effectively pay more than the benchmark used for other government finances.

Long-term implications for graduates

The implications for young borrowers are significant and punishing. Higher interest rates mean a greater share of income is siphoned off to service debt, leaving less cash for saving, investing, or building long-term financial resilience. Money that could have been channelled into pensions, ISAs, property deposits, or other wealth-building vehicles is instead trapped in servicing loans. Over decades, this compounds, potentially leaving graduates with smaller financial buffers in a world where, as demonstrated by the war with Iran, cost-of-living shocks are increasingly frequent.

The government is attempting to cut consumer costs in one corner while leaving young borrowers paying more, creating a stark generational divide in financial outcomes, and potentially delaying their ability to invest and build long-term wealth.’’