The Higher Education Policy Institute (HEPI) and London Economics
have published modelling on proposed reforms for higher education
funding in Wales in the run up to the Senedd elections on 7 May
2026.
London Economics was commissioned by HEPI to assess the impact of
specific policy options for Welsh political parties ahead of the
2026 Senedd elections, including:
- keeping Plan 2 student loans (which Wales kept when England
moved to Plan 5);
- reducing maintenance grants for Welsh students studying
elsewhere in the UK; and
- removing loan interest rates and extending the loan repayment
period to 45 years.
While it is not possible to know exactly what the different
political parties' manifestos will say yet, these three options
are respectively based on the policies of: i) the current Labour
administration; ii) documents from Plaid Cymru; and iii)
statements by Reform UK. These three political parties have led
the opinion polls in Wales for most of the past two years.
The analysis is outlined in a new report, Assessing potential
manifesto commitments on higher education funding in Wales,
which focuses on the 2025/26 cohort of first-year Welsh-domiciled
undergraduate students. The modelling assesses a range of
metrics, including spending on student loans; student loan debt
on graduation; and expected lifetime loan repayments.
Plaid Cymru's proposal of lowering maintenance grants for Welsh
students who go to study in the rest of the UK would reduce the
Exchequer cost of the funding system by £26 million per cohort,
and increase the cost for students / graduates studying in
the rest of the UK by the same amount.
These students would be worse-off due to the reduction in
maintenance grant funding but, post-graduation, only high-income
graduates would face increased loan repayments, while low- to
middle-income graduates would be unaffected by the proposals.
Under Reform UK's proposals of abolishing loan interest rates and
introducing a 45-year repayment term, the Exchequer costs would
increase very substantially, by £332 million per cohort (more
than 80% higher than under the current system). The cost to
students / graduates would fall by the same sum. This is due
to the costly elimination of loan interest rates: the extension
of the loan repayment period has little impact, so does not
offset the additional costs.
Middle- and high-income graduates would benefit from much lower
total repayments; however, low-earning graduates would make
slightly total higher repayments.
The new report emphasises that it remains unclear how much
practical room for manoeuvre any political party will have after
the Senedd elections, as the Welsh Government is constrained in
its student support policy by budgetary limits imposed by the
UK-wide Treasury. These limits dictate that the cost of student
loans in any of the devolved nations, including Wales, should be
‘comparable' or less than in England, if the costs are to be
funded by the UK Government.
OBE, HEPI's Director,
said:
‘All four parts of the UK have moved further away from one
another when it comes to funding undergraduate students, thanks
to devolution. Now, it seems this process of differentiation may
continue.
‘Until recently, many people argued the Welsh funding
settlement for higher education should be copied in other parts
of the UK. But Wales kept Plan 2 student loans when England moved
to Plan 5 loans and the Welsh settlement is now being questioned
from many sides even in Wales itself. Some change is possible
and, increasingly, probable.
‘Yet the main political parties in Wales have been reluctant
to set out a clear pitch, making it difficult to model the future
while limiting voters' knowledge. However, Plaid Cymru do have a
proposal to encourage more Welsh students to stay in Wales while
Reform UK have also said enough to allow some modelling to
occur.'
Maike Halterbeck, Partner at London Economics,
said:
‘While it is unclear whether any of the political parties
will end up making specific pledges on higher education funding
during the Senedd elections, the current – relatively generous -
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. A substantial forthcoming
reform of the system is becoming more and more
likely.
‘In lieu of any official manifestos, which are still to be
published, both Plaid Cymru and Reform have made explicit
statements on higher education funding in the past, and this is
what we have modelled here. Their proposed changes to the system
are substantially different from each other, with Plaid Cymru
focusing on maintenance support and Reform UK focusing on student
loan repayment terms. However, given the current fiscal
pressures, both parties may be severely limited in their ability
to implement these proposals in practice if elected.'
