In February, Wales was going to stand up to Westminster on student loans. Nine months later, it has backed down.
A written statement from Cefin Campbell, Plaid Cymru’s deputy minister for skills and tertiary education, confirms that the Plan 2 repayment threshold for Welsh borrowers will stay at £29,385 for the three financial years from 2027–28 to 2029–30. The interest thresholds are frozen too, at £29,385 and £52,885. Welsh graduates get exactly what Rachel Reeves gave English ones in the 2025 Budget.
This is not a decision I wanted to take. Unfortunately, the UK Government’s decision to freeze these thresholds for English Plan 2 borrowers leaves this Welsh Government with little choice.
That’s a long way from where the Senedd was in February. At First Minister’s Questions on 3 February, Eluned Morgan told members that only Welsh ministers could set the threshold for Welsh borrowers, and that her government had “no intention of freezing the thresholds and following England”. We read that at the time as Labour handing the problem to whoever won the election – and said that if it didn’t work, the problem would land in Plaid’s lap. It has.
Plaid backed the refusal. The next day Heledd Fychan welcomed the First Minister’s “clarity”, asked Mark Drakeford whether Wales had even been consulted, and said a split between England and Wales was “rightly so, since this is an issue that’s devolved”. Drakeford agreed that “there’s nothing different about there being a different system”, since it had been that way since student loans began.
So what changed? Campbell’s statement reminds us that repayments are collected by the Student Loans Company and HMRC through one UK-wide system that “cannot support different repayment thresholds for Welsh and English borrowers”, and fixing that would take “substantial system changes over several years”.
Hmmm. When Scotland decided to raise its threshold to £25,000, its First Minister announced it in June 2018, HMRC told payroll software firms about the new Plan 4 in June 2020, and it went live in April 2021. Adding a new plan to payroll takes time.
But Plan 4 also shows that what the statement says can’t be done has been done before. An existing shared plan was split according to who lent the money, and Scottish borrowers already repaying were moved onto the new terms. The system can’t do it because nobody has asked it to.
And not much sign that anyone asked. Reeves announced the freeze in November 2025 and Morgan rejected it in February, yet in July, answering Labour’s Lynne Neagle, the government confirmed that “there have been no ministerial discussions with the UK Government regarding the Plan 2 repayment threshold”. If lead times are the problem, the clock ran for a year and no minister seems to have picked up the phone.
The argument only covers 2027–28 anyway. If a Welsh plan can’t be ready for next April, Wales could freeze for one year and promise to lift the freeze once the system is ready. Instead, it has frozen all three.
Almost certainly the real reason is in the statement’s last paragraph, which says the freeze:
“…will mean that the Review has some additional financial flexibility when considering future student loan repayment arrangements”.
To see why, remember why chancellors keep pulling this lever. Freeze the threshold and graduates are expected to repay more across the whole loan book. Under the Office for National Statistics’ accounting rules, the Treasury books that as a one-off gain in the year of the change – £5.6bn when the Office for Budget Responsibility first costed Reeves’s freeze, and £7.1bn by this year’s Budget, because inflation is higher.
Wales doesn’t get that gain. When Welsh ministers froze the threshold for a year in 2022, their explanatory memorandum admitted the extra repayments “would accrue to the UK Government rather than to the Welsh Government directly”. Welsh graduates pay more and the Treasury keeps it. London Economics estimates a freeze adds £3,300 to the average man’s lifetime repayments in the 2025–26 cohort and £5,100 to the average woman’s, with high earners barely touched.
What Wales does get is the cost. As we’ve set out before, the Treasury covers the cash lent to Welsh students, but the share not expected to come back – and any fall in the value of loans already issued – comes out of the Welsh government’s own budget. Under the Treasury’s funding rules, Wales can only be more generous than England if it pays the difference itself.
So when Reeves froze England’s threshold, England’s system got cheaper, and by standing still Wales became more generous. On one Treasury measure Wales was already over its allowance, and not freezing would have pushed it further over – just as Audit Wales, which qualified the 2024–25 accounts over the loan valuation, expects the loan book to be written down sharply anyway.
And because the Barnett formula ignores loans, England’s gain sends Wales nothing. All Wales gets from the freeze is a penalty avoided, measured against a benchmark Westminster has just moved. The “additional financial flexibility” for Patrick Prendergast’s review is room under Treasury limits, and Welsh graduates on modest salaries are paying for it.
The statement ends by promising a “stronger Made for Wales approach to student finance” – an odd note to end on, having just confirmed that Welsh repayment terms will match England’s for the rest of the decade.
A nationalist government has two ways to explain that. One is that a UK-wide IT system won’t let it run Welsh policy, which looks bad but blames the machinery. The other is that UK accounting rules make it too expensive to be different. That’s the truth, and a far better case for changing how devolved loans are financed – something Plaid presumably wants.
Campbell has chosen the first. It’s convenient, it gives the review its room, and it means nobody has to say out loud that the terms of a devolved loan are in practice set in Westminster. Diamond put a progressive repayment system at the heart of Welsh student finance. It turns out it was only ever on loan.