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Government uses high inflation as cover for hitting students, graduates and universities – Sector Response

Students sat on steps looking at laptop

The government is quietly tightening the financial screws on students, graduates and universities. Students will see substantial cuts to the value of their maintenance loans, as parental earnings thresholds will stay frozen in cash terms and the uplift in the level of loans will fall far short of inflation. This continues a long-run decline in the value of maintenance entitlements. The threshold below which students are entitled to full maintenance loans has been unchanged in cash terms at £25,000 since 2008; had it risen with average earnings, it would now be around £34,000.

Separately, the student loan repayment threshold will also be frozen in cash terms. This is effectively a tax rise on middle-earning graduates. A graduate earning £30,000 will need to pay £113 more towards their student loan in the next tax year than the government had previously said. Finally, tuition fees will remain frozen in cash terms for another year, which hits universities and mainly benefits the taxpayer. On the whole, as our updated student finance calculator shows, the government is saving £2.3 billion on student loans under the cover of high inflation.

Ben Waltmann, Senior Research Economist, Institute for Fiscal Studies:

‘The government seems determined to use high inflation as a cover for reducing the taxpayer cost of student loans. Large real-terms cuts in maintenance loans could cause genuine hardship for students on tight budgets. A freeze in the repayment threshold mostly hits middle-earning graduates, whose budgets are already being squeezed by the rise in the cost of living, the freeze in the personal allowance and the hike in National Insurance. And the extension of the freeze in maximum fees will add further pressure on universities, while only benefiting the highest-earning graduates.’

Sector Response

Matt Western MP, Labour’s Shadow Universities Minister, responding to the IFS’s new report showing that the Government is using high inflation as cover for hitting students, graduates, and universities, said:

“The Conservatives’ cost of living crisis is hitting people’s pockets, yet the Government’s response is to raise taxes on working people, introduce a buy now pay later energy scheme, and use a smokescreen to hammer students and graduates.

“Labour would raise money to cut energy bills, through a one-off windfall tax on oil and gas profits, saving most household £200 off their bills, with targeted support of £600 in total for those need it most.

“The Conservatives don’t have an answer to the cost of living crisis because they are creating the cost of living crisis.”

A Department for Education spokesperson said:

“Our student finance system was designed to ensure those from the poorest families get the most support whilst they study. Those STUDENTS currently have access to the largest ever amounts of living costs support in cash terms and we have increased maximum loans for living costs over the last two years.

“The student loan system needs to be fairer for both students and the taxpayer. With graduate salaries rising it is only fair to ask borrowers who are benefitting financially from their higher education make a reasonable contribution towards its costs.

“We are also tackling dropout rates and improving graduate outcomes so that students get better value for money – especially those from disadvantaged backgrounds.”

DfE continued:

“Maximum loans for living costs were increased by 3.1% for the 2021/22 academic year with a further 2.3% increase announced for the 2022/23 academic year. 

“We will continue to protect lower earners and no student will have to make repayments on their loan until their income reaches the £27,295 threshold.

“We’ve confirmed we have frozen tuition fees for the fifth year in a row – reducing the initial amount of debt students will take on.

“We know student hardship has been a real challenge through the pandemic – which is why we’ve put in £5m this year via the Office for Students to support students in need.

“On top of that, we asked the OfS to protect the £256m set aside for student premiums, which support disadvantaged students and those who need additional help, of course all of this is in addition to the substantial hardship funds many universities already provide. My best advice to any student who is worried about making ends meet is to speak to their university and seek support  

“Average annual earnings for young graduates (age 21-30) have risen from £24,500 to £28,000 from 2016 to 2020. And in 2020, young graduates typically earned £6,500 more per year than their non-graduate counterparts.”

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