Student finance changes in the budget – Director’s cut

Care leavers

From 2026-27, anyone who can evidence that they meet or previously met the statutory definition of a care leaver will be entitled to the maximum maintenance loan automatically, exempt from means-testing.

The key words there are “previously met” – because until now, the care leaver entitlement has come with an expiry date.

The statutory definition in the Student Support Regulations covers young people who were looked after by a local authority for at least 13 weeks spanning their 16th birthday (or for a period after age 16) and who haven’t returned to the care of their parents.

But that definition typically only applies to those aged under 25. Turn 25, and you’re no longer a “care leaver” for student finance purposes – you’re just another mature student to be means-tested like everyone else.

That creates ridiculous outcomes. Care leavers disproportionately enter higher education later than their peers – they’re more likely to need time to stabilise their lives, catch up on education disrupted by multiple care placements, or simply gain the confidence to contemplate university at all.

Someone entering at 26 or 27 could find themselves assessed against a parental income threshold despite having no meaningful relationship with their parents, or receive only the minimum loan because their estranged parents happen to earn modest incomes that nonetheless push them above the threshold.

The change removes the age limit entirely. Someone who was in care at 16 and is now starting university at 35 will automatically receive the maximum loan – £10,830 for those living away from home outside London – without jumping through means-testing hoops. It’s a genuine improvement, and the kind of targeted policy change that actually addresses a real problem rather than creating new ones.

Dependants and DSA

Childcare Grant is supposed to pay 85 per cent of registered childcare costs, but only up to the weekly maximum. It does not pay 85 per cent of whatever your nursery charges. It pays 85 per cent of the cap, or 85 per cent of your actual bill if that is lower.

Average full-time nursery costs in England are now well over £200 per week, and in many cities they are considerably higher. For some types of place and in London, £280 a week is not at all unusual.

Assume a student parent is paying £280 per week for a full-time nursery place for one child. On paper, 85 per cent of that would be £238. The cap stops the grant at £199.62.

So the student’s weekly contribution is not just the “mandatory” 15 per cent co-payment. It is the 15 per cent plus everything above the cap – more than £80 a week in this scenario. Over a 39-week academic year that is upwards of £3,000 from their maintenance loan or other income just for childcare, on top of rent and everything else.

Layer over the structure of free childcare entitlements and the bind tightens.

All three- and four-year-olds are entitled to 15 hours of funded early education a week. The expanded 30-hour offer for working parents is tied to earnings, and you normally need to earn the equivalent of at least 16 hours a week at the National Minimum or Living Wage to qualify, and stay below an upper income cap.

There is nothing in the rules that says “students cannot get 30 hours”. If a student or their partner meets the earnings test, they can access the entitlement. In reality, most full-time student parents either cannot work enough hours alongside their course or cannot find the sort of flexible work that would get them over the threshold.

So they are often in the worst of both worlds. They rely on the 15 universal hours, they do not qualify for the 30 hours that are increasingly central to how childcare is funded, and the grant that is supposed to plug the gap is capped at a level that does not match their actual costs.

Given the hand-wringing about falling birth rates, ministerial rhetoric about “lifelong learning” and the constant talk of people re-skilling at different life stages, it is hard to avoid the conclusion that nobody has thought through what this looks like for a student parent doing exactly what the system says it wants.

If you were trying to design a system that quietly discourages mature, motivated student parents – precisely the kind of applicants universities will need if 18-year-old numbers fall – you would struggle to do better.

Dependants overseas

There’s also a new restriction that will affect a smaller but still significant group. From 2026-27, new students applying for Adult Dependants’ Grant whose adult dependant is “ordinarily resident overseas” won’t qualify.

The policy paper doesn’t elaborate on the rationale, but you can guess – if your dependant lives abroad, they face different cost-of-living pressures than someone in the UK, and the grant was designed for UK household costs.

But this removes support from students who may still be genuinely supporting partners or family members through remittances – and it’s likely to disproportionately affect students who’ve migrated to the UK leaving family behind, those whose partners are awaiting visa decisions, or settled students supporting elderly parents in their country of origin.

The wording specifies “new students applying,” which suggests existing recipients may be protected under transitional arrangements. But the policy paper doesn’t explicitly confirm this, and anyone advising affected students will want clarity before the regulations are laid.

Disabled students

The maximum DSA stays at £27,783 next year. Since the move to a single pot, that cap has had to cover specialist equipment, non-medical help and a growing reliance on education technology. Inflation in those markets is not gentle.

Where suppliers cannot recruit British Sign Language interpreters, study skills tutors or mental health mentors at the hourly rates the Student Loans Company will fund, the result is not an abstract “efficiency saving”. It is students waiting longer for support, having hours cut, or being nudged towards cheaper forms of help that may not actually meet need.

In theory, universities are supposed to step in and make reasonable adjustments regardless of DSA. In practice, many have built their disability support models on the assumption that the state will pay for the expensive bits. A frozen cap, rising costs and more students with declared conditions is not a sustainable triangle.

PG thresholds

Finally, for completeness – postgraduate loans are also rising by 2.71 per cent, to £13,206 for master’s degrees and £31,122 for doctoral programmes (both for the full duration of the course).

But while the undergraduate repayment threshold for Plan 5 loans sits at £25,000, postgraduate loan holders on Plan 3 start repaying at just £21,000 – a threshold that’s been frozen since these loans were introduced in 2016.

That’s now worth around £16,500 in 2016 prices, meaning postgraduate borrowers are repaying at significantly lower real incomes than was ever intended. No wonder DfE makes a profit on the whole wheeze.

If someone did what the government encouraged – completed an undergraduate degree and then invested in a master’s to boost their skills and earnings – it’s punishing.

Let’s take someone who graduated in 2019 with a Plan 2 undergraduate loan, did a master’s in 2020 (Plan 3 postgraduate loan), and has been repaying both since April 2022.

They’re earning £30,000 – pretty much bang on median graduate earnings a few years out – and their salary grows at 3 per cent annually, roughly in line with average earnings.

By April 2026, our graduate earns £31,830. Here’s what comes off their salary each year:

• Gross salary: £31,830
• Income tax: £3,852 (20 per cent of £19,260 above the £12,570 personal allowance)
• National Insurance: £1,541 (8 per cent of £19,260 above the £12,570 primary threshold)
• Plan 2 student loan: £220 (9 per cent of £2,445 above the £29,385 threshold)
• Plan 3 postgraduate loan: £650 (6 per cent of £10,830 above the £21,000 threshold)
• Total deductions: £6,263
• Net annual pay: £25,567 – or £2,131 per month

That’s 19.7 per cent of gross salary gone before they’ve paid rent, bought food, or put anything aside for a deposit. A significant chunk of that is purely because thresholds have been frozen.

From April 2027, things get worse. The Plan 2 threshold that just rose to £29,385 gets frozen until 2030. So as our graduate’s salary keeps growing, their repayments grow too – but the threshold protecting them stays stuck.

By, say, 2028-29, our graduate now earns £33,760. The personal allowance is still £12,570 – indexed, it would be around £17,400. The extra taxable income of £4,830 costs them £966 in additional income tax. The NI freeze adds £386.

The Plan 2 threshold remains frozen at £29,385. They repay 9 per cent of £4,375, which is £394. With an indexed threshold of around £32,400, they’d repay just £122. The freeze costs them £272.

The Plan 3 threshold is still £21,000. Indexed, it would be around £31,200. They’re repaying £766 instead of £154. Freeze cost: £612.

That’s a total freeze cost of £2,236.

This isn’t an unfortunate side effect of difficult fiscal choices – it’s the point. The OBR estimates that income tax threshold freezes alone will raise £38 billion a year by 2029-30. Student loan threshold freezes add billions more.

The beauty of freezing thresholds – from the Treasury’s perspective – is that it’s almost invisible. No minister has to stand up and announce a “tax rise”. Your payslip just shows slightly higher deductions each year, and most people assume that’s just how things work.

Meanwhile, regardless of how much money universities get, graduates are contributing more and more for their education.