21st July 2015
The poorest students in England will graduate with debts of up to £53,000 following Budget changes to replace maintenance grants with loans, a think tank has warned.
The Institute for Fiscal Studies says this will result from the replacement of maintenance grants of up to nearly £3,500 per year by maintenance loans worth up to £550 a year more.
It calculates that the poorest 40% of students going to university in England will be left with debts of up to £53,000 from a three-year course, rather than up to £40,500 under the previous system.
Students from households with pre-tax incomes of up to £25,000 (those currently eligible for a full maintenance grant) will have a little more cash in their pockets while at university, the IFS found.
However, they will graduate with around £12,500 more debt. This means that students from the poorest backgrounds are now likely to leave university owing substantially more to the government than their better-off peers.
The IFS says: “Two major changes to student finance were proposed in the Budget. The replacement of maintenance grants by loans from 2016–17 will raise debt for the poorest students, but do little to improve government finances in the long run.
“The proposed freezing of the repayment threshold for loans, on the other hand, will – if implemented – significantly improve government finances because it will result in an increase in graduate repayments.”
It adds: “If enacted, the one that will have the greatest impact on graduate repayments – including for current students – is the announcement that the repayment threshold for student loans will be frozen at £21,000 for five years.
“This means that repayments will start at a lower level of income than previously expected (close to the value of the pre-2012 threshold of £15,000 in real terms by the end of the freeze period).”
The IFS calculates that, given the change from maintenance grants to loans described previously, graduate loan repayments will increase by a further £3,800, on average, per student in 2016 money, reducing the long-run cost to government of issuing student loans by around £1.4 billion per cohort of students.
It says this change will hit middle-income graduates hardest, as they will end up paying more per year for the majority of the repayment period. It estimates that an individual on median graduate earnings will repay over £6,000 more in total in 2016 money.
Jack Britton, research economist at the IFS, says:“While the small increase in support for living costs available to students from lower-income families will undoubtedly be welcomed by many, the switch from maintenance grants to maintenance loans will result in substantially higher debt for the poorest students. For most, though, it is the freezing of the repayment threshold which will do more to raise loan repayments, and hence increase the cost of higher education.
“The 2012 reforms appear not to have had a negative effect on higher education participation amongst full-time students from poorer backgrounds. This likely reflected the fact that the system was designed to protect both that group and those with low expected lifetime earnings. Only time will tell whether these new changes will be similarly benign in their effect.”