Welsh election student loan promises ‘unworkable without cuts’

Changes to student finance pledged by the front runners in the upcoming Welsh election may be unworkable without cuts in other spending areas and could leave some graduates repaying more, new analysis has found. 

A report assessing the impact of potential changes to the student finance system in Wales after the upcoming Senedd election has cast doubt on whether Plaid Cymru and Reform UK would be able to follow through on their plans to shake up student loan funding.

Although election manifestos are yet to be released, Plaid Cymru, which is currently leading in the polls, has suggested it will lower maintenance grants for Welsh students who study in the rest of the UK and instead provide additional maintenance loans.

The analysis, published by the Higher Education Policy Institute, found that these proposals would save the exchequer £26 million.

Welsh students studying in the UK would see their average debt on graduation increase by £5,300 to £62,800, while this figure would remain unchanged for those studying in Wales. 

Low- to middle-income graduates would be unaffected by the proposals because they would already not be expected to fully pay off their loan, meaning their repayments would not be impacted by the higher maintenance loans. 

Only high-income graduates would be affected – they would be expected to typically repay between £8,000 and £11,000 more than under the current system, the report found. 

Reform UK, which is currently second in the polls, suggested in the 2024 general election it would scrap interest on student loans and extend the loan repayment term to 45 years. 

The analysis found, if implemented in Wales, the proposals would increase exchequer costs by £322 million per cohort (82 per cent).

Although middle- and high-income graduates would pay much less, graduates earning the least would replay slightly more under the plans. 

It comes as calls grow in England for the government to reverse plans to freeze the repayment threshold for Plan 2 loan holders as graduates face spiralling levels of debt.

Wales retained Plan 2 loans when England moved to Plan 5, which has a longer repayment period but generally lower interest rates, in 2023. The report assumes that Welsh Labour, the only other potential winner of the election, would keep the current system in place.

Changes that were being proposed may also be harder to realise in practice, the report adds. The economists from London Economics behind the figures warned it was “unclear whether either party would in practice be able to implement these potential funding reforms if elected”, due to constraints imposed by the central government. 

Because the Treasury provides the funding for student loans to the devolved nations, the terms require devolved governments to “demonstrate that their scheme costs the same or less than it would cost if they were to apply UK government policy in their respective nation”. 

The report found that Plaid Cymru’s proposals would result in both a higher maintenance loan outlay and a marginal increase in the Resource Accounting and Budgeting (RAB) charge – the estimated cost to the UK government of borrowing to support the student finance system.

Reform UK’s plans would be expected to result in a “substantial increase” in the RAB charge and the resulting costs to the Treasury. 

“As a result, all else equal, both policy proposals will likely be difficult to implement in practice, in the absence of cuts elsewhere in Welsh government’s spending,” the report says. “In the case of our interpretation of Plaid Cymru’s proposals, these wider cuts are more marginal; however, Reform’s proposals, if implemented, would require very significant expenditure cuts elsewhere.”

Maike Halterbeck, partner at London Economics, said the current undergraduate funding system in Wales “is becoming increasingly fiscally unsustainable”. 

“With rising pressure on the Welsh Government from HM Treasury to reduce the costs of Welsh student loans, something will need to give,” she continued. 

“A substantial forthcoming reform of the system is becoming more and more likely.”

However, she continued, current fiscal pressures mean both Reform UK and Plaid Cymru may be “severely limited” in implementing their proposals.

helen.packer@timeshighereducation.com