Student debts to exceed £50,000 for poorest, says IFS

Institute for Fiscal Studies says George Osborne’s Budget changes will also hit middle-earning graduates by more than £6,000 on average

July 21, 2015

Replacing maintenance grants with loans will raise the debt incurred by poorer students by about a quarter, but will do little to improve government finances in the long run, a respected thinktank has said.

In an analysis published today, the Institute for Fiscal Studies says the loss of maintenance grants – announced by the chancellor of the Exchequer, George Osborne, in this month’s Budget – will see the poorest 40 per cent of students in England leave university with debts of up to £53,000, rather than up to £40,500.

The move will cause government borrowing to fall by about £2 billion a year, as measured in the national accounts, but the long-term savings will be much lower, according to an IFS briefing note titled Analysis of the higher education funding reforms announced in summer Budget 2015.

Only about a quarter of these additional loans will be repaid, resulting in a net saving of about £270 million per cohort – a 3 per cent decline in the government’s estimated contribution to higher education, the thinktank 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,” said one of the study’s authors, Jack Britton, a research economist at the IFS.

However, the chancellor’s decision to freeze the repayment threshold for student loans at £21,000 for five years will deliver substantial savings – about £1.4 billion per cohort of students, the report says.

That change – a breach of the promise made to students when controversial higher education reforms were passed in 2010 – will hit middle-income graduates hardest as they will each pay more than £6,000 extra in total in 2016 money, the IFS says.

Graduate loan repayments will increase by £3,800, on average, per student in 2016 money, the institute says.

“It is the freezing of the repayment threshold which will do more to raise loan repayments, and hence increase the cost of higher education,” said Mr Britton.

He added that the £9,000 fee system introduced in 2012 did not appear to have had “a negative effect on higher education participation amongst full-time students from poorer backgrounds” because “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,” he added.

The IFS analysis confirmed fears voiced by university staff that the “poorest students that aspire to university will have to take on much larger debts and be hit with bigger annual repayments once they graduate”, said Sally Hunt, general secretary of the University and College Union.

“It is little more than a tax on aspiration and exposes this government as certainly not being on the side of the strivers,” said Ms Hunt.

A spokesman for the Department for Business, Innovation and Skills said that the government was “committed to widening access in higher education”, and that anyone with the ability to succeed “should have the opportunity to participate, regardless of their background or ability to pay”.

“The changes announced in the Budget provide students with more money in their pockets to help with living costs while studying,” he added. “Lifting the cap on student numbers also means that more people will be able to benefit from higher education than ever before.”

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