English maintenance loans ‘now £1K short of minimum wage’

IFS says continued use of out-of-date inflation predictions to set living cost loans makes ‘no sense at all’

六月 15, 2022
Person counting money in hand
Source: iStock

A student in England would be at least £1,000 better off working on the minimum wage next year instead of studying owing to the failure of government maintenance loans to keep pace with the rising cost of living, an analysis has found.

The Institute for Fiscal Studies said it was the first time in almost 20 years that such a gap had opened up, blaming the continued use of out-of-date inflation predictions for setting the levels of maintenance loans.

Next year, students from the poorest families who are studying away from home outside London will be entitled to borrow £9,706 to support their living costs, which is only a 2.3 per cent increase on the year before at a time when inflation is set to be running at 8 per cent.

The reason, according to an IFS briefing paper on the issue, is that increases in loan entitlements were being based on inflation predictions made “years in advance”.

“For example, the increase of 2.3 per cent for the 2022-23 academic year was taken from the November 2020 [Office for Budget Responsibility] projections. But these projections are now woefully out of date, because inflation has been much higher than forecast then,” it says.

If the most recent projections for inflation were used, the increase in maximum maintenance loans next year would be 9.2 per cent, the paper adds, while students would be able to borrow about £10,860 if prediction errors had been avoided.

“This means that merely because of forecast errors, students from the poorest families will be £1,200 out of pocket in the next academic year, or around £100 per month,” the analysis says, adding that “remarkably, there is no mechanism in place for these errors ever to be corrected”.

The IFS says the problem of these “stealth cuts” in loan entitlements has also been compounded by a freeze in the family earnings thresholds that decide eligibility for maintenance support.

For instance, the family earnings threshold below which students can draw the maximum living costs loan had been frozen at £25,000 since 2008 and would have been £35,000 if it had been indexed with rising salaries.

The effect of this “will be particularly painful in times of high inflation”, says the IFS, as “many students will be eligible for smaller maintenance loans, even though their parents will be less able to support them” because of the rising cost of living.

Ben Waltmann, senior research economist at the IFS and the author of the briefing, said the government’s use of outdated forecasting for setting its increases in living cost loans made “no sense at all”.

“The government should use more up-to-date forecasts and correct for any errors in the following year to avoid permanent cuts. Alternatively, maintenance entitlements could be tied to earnings on the minimum wage, as proposed by the government’s own Augar review” of post-18 education, he added.

National Union of Students president Larissa Kennedy said it was “hearing from students who are working three jobs to make ends meet, who can’t even afford to travel to their university library, and who are cutting back on cooking food due to spiralling energy costs”.

“The government needs to listen to students, unfreeze the parental earnings threshold and dramatically increase the level of maintenance support on offer for all students,” she said.




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