Wales won't freeze student loan threshold, first minister says

Welsh First Minister Eluned Morgan says Wales won't join England in freezing the threshold at which some of its students repay their student loans.

Personal finance expert Martin Lewis said Wales was "taking a stand", having previously criticised a freeze announced in England by Chancellor Rachel Reeves.

Morgan told Wales' parliament, the Senedd, that only the Welsh government - not UK ministers - could set repayment thresholds for Welsh borrowers.

BBC Wales has been told Welsh ministers believe the financial and operational implications for Wales of Reeves' plan are unclear, and are working with UK counterparts to understand them.

It is understood that the Welsh government isn't going to wait for an impact assessment of what the changes might mean, because the UK government is changing policy for English borrowers and Wales will not follow suit.

In her November Budget, Reeves announced the salary at which Plan 2 student loans must be paid back would be frozen at £29,385 for three years starting from April 2027.

A freeze would mean workers earning above that amount will be dragged into making larger repayments on their student loans than if the thresholds had risen in line with inflation.

Defending the move, in January, she described the student loans system as "fair and reasonable".

Plan 2 loans apply to students who started courses in England and Wales between September 2012 and July 2023. The threshold is currently £28,470 for this plan.

On Tuesday, Morgan told the Senedd: "Only the Welsh Labour government ministers can set the repayment threshold for Welsh borrowers.

"The UK government can't determine the threshold for Welsh students, and any change requires a decision by the Welsh government.

"I want to make it clear today that we have no intention of freezing the thresholds and following England in this regard.

"We'll work with the UK government to understand the full implications of the change. We need a proper impact assessment, and that's clearly where we stand."

Personal finance expert Martin Lewis welcomed the news, saying: "This is an important move by the Welsh government, especially as its current students are still on Plan 2 loans, the only undergraduate plan where above inflation interest is charged.

"The chancellor's freezing of the repayment threshold is a moral breach of the contract that millions of, now graduates, on Plan 2 student loans signed up for.

"They were promised that the threshold would rise with average earnings, without that it means they effectively pay more.

"Young people need to be able to trust that when they sign contracts with governments, those terms will not be eroded behind their back - its good to see Wales taking a stand."

Graduates repay 9% of the amount earned above the threshold outlined in their plan.

They do not have to start making payments until the April after leaving their course, and payments are made automatically through the tax system.

Reeves has said the changes announced in the Budget were bringing the different repayment plans in line with each other.

"You'll start paying back at the same income level. I think that is fair and reasonable," she said.

Speaking to the BBC's Newsnight programme last month Lewis called on her to "rethink".