A student hardship crisis could be coming – here’s how to avert it

As an economic chill comes for low income families, Jim Dickinson considers the possible impacts of a dramatic rise in inflation on students.

Jim is an Associate Editor at Wonkhe

The cost of living is on the up. Well documented problems in food production, strains in the labour market and problems in energy markets are likely to see inflation rise above 4 per cent in the coming months – the highest rate seen in the UK since 2011.

That’s going to hit those with the lowest incomes the most – because proportionally they spend much more on food, gas and electricity than richer households. In 2019-20 ONS figures show that those in the poorest decile allocated 21.2 per cent of their expenditure to those three items, compared with the richest devoting just 9.5 per cent.

To what extent should we be worried about students in that context? We’ve been over on the site before the astonishing lack of intel that the Westminster government has on student income and expenditure – with the last proper bit of research on it carried out seven years ago. We’ve also noted before that chancellor Rishi Sunak’s claims that he’s helped the poorest households the most during the pandemic are heavily distorted by analyses that count tuition fee loans as household income.

During the pandemic all that students in England got was access to DfE’s magic money twig, which lives on into 2021/22 as a miserly £5m allocation into university hardship funds – around £2.50 each.

Meanwhile to head off criticism surrounding his £20 cut to universal credit, at the Conservatives’ conference in Manchester Sunak even launched a £500m “household support fund” that will “support millions” via small grants for food, clothing and utilities – with money being disbursed by local authorities. As was the case with the Test and Trace Support Payment and the discretionary top up pot that local authorities were given, it’s probably safe to assume that students won’t be able to access it.

So as the debate over funding heats up in the run up to the Comprehensive Spending Review, with lots of discussion about university budgets and graduate repayments, let’s see what we can discern about what could be about to happen to students’ pounds in their pockets and identify what we might do about it.

My beautiful balloon

In the absence of decent data on student income and expenditure, we need first to have a think about the impact of inflation on students.

The Bank of England’s Monetary Policy Committee prediction is that consumer price inflation (CPI) is expected to rise to slightly above 4% in 2021 Q4, largely thanks to developments in energy and goods prices. That would be bad enough – but it’s worth remembering that the basket of goods that your average household buys isn’t the basket of goods that your average student stocks up on.

Just over a decade ago now, Alan Shipman – a lecturer in economics at the Open University – caused a bit of a stir with his “Student Price Index”, a kind of remix of inflation taking into account the composition of goods in a student basket in the 2004 iteration of DfE’s Student Income and Expenditure Survey. He calculated that in July 2008, while CPI was on 4.4% SPI was running at 6.6% for FT students in England, driven largely by their spend on rent, food and personal goods.

In the 2014/15 Student Income and Expenditure Study, if we take out expenditure on tuition fees (which would obviously distort a basket), housing costs for students in England made up 31.5% of expenditure, but represented just 12.8% for average households. Food and drink and transport were also higher.

Since then a failure to match supply to demand coupled with a range of other market distortions appears to have seen student accommodation costs rise at consistently higher rates than average, and while lower food and energy costs have compensated for that a bit by tending to rise at lower than headline inflation rates, that certainly won’t be the case this winter as inflation climbs.

The problem that produces may well be dramatic and stark. There’s plenty of students, for example, on what they think is an “all inclusive” bills rent charge, who’ve not noticed small print that allows their landlord to jack the rent up in-year if energy costs rise dramatically (in a year when more students will spend more time in their accommodation, soaking up their “blended” learning). And in any event this August the proportions of students saying that money worries affected their diet, social life, grades, relationships, mental health and/or sleep had already increased in each category compared to last year.

Will increases in wages for part time work help? Not necessarily. Resolution Foundation analysis of labour shortages suggests that it’s transport / logistics / warehouse, manufacturing, construction / trades and facilities / maintenance where the biggest gaps are rather than in hospitality, retail or admin. There might be a return to summer working, but in general the vacancies out there seem to be in jobs that students are much less likely to be qualified to do, and that are much less likely to be practically combinable with full-time study.

Averting a crisis

This is a government that loves its hardship funds – you can announce a big figure without giving people an actual entitlement. It’s what it did when it scrapped the Education Maintenance Allowance at the start of the last decade, it’s been the approach over Covid support for students, and as noted above, it’s even to be the approach that will be adopted over the £20 universal credit cut (which, lest we forget, some students in some circumstances do get).

But hardship funds are a real headache. The other day it emerged that more than £1.6m of DfE-provided student hardship funding was actually returned to the Office for Students last year after providers were unable to distribute it before the funding deadline. The money – part of an exceptional allocation to address Covid-19 related student hardship – had strict terms and conditions attached to it which required that providers distributed it to students via a hardship grant process. There’s also issues with the allocations which we looked at on the site last year.

So the first thing that should be done is for the government to immediately increase the maximum (and related tapered) maintenance loan entitlements by circa £1,000. That would correct the injustice in the way the rates have risen in the past, and provide relief for students that need it the most.

Next, officials from the Treasury, the DWP and DfE should meet to discuss whose responsibility it is to assesses the financial plight of students and ensure they are adequately supported. The Spiderman meme method of assuming that while this might be a problem, it’s just not my problem, isn’t really good enough any more.

While the government allocates some responsibilities, it should top-up hardship funding to a meaningful amount and ensure that all students can access it. Postgraduates will continue to face hardship and both currency fluctuations and the expansion of international exports beyond the richest in other countries mean that stories like the ones in that heartbreaking Channel 4 coverage from last year aren’t going away.

We also need to look again at expenditure by providers on student financial support. In England OfS resolved a few years back to only worry about access and participation outcomes rather than dictating the proportion of fee income to be spent on bursaries – and has not told us since what that has meant for the amount of cash going into students’ pockets.

The problem is that even if the proportion of disadvantaged students completing or getting good honours has improved, lots will have done so by scraping by – without taking part in wider university life, without going on the “optional” field trips and who end up working part time until 3am. They are the ones who will then wonder why their labour market outcomes don’t match their richer counterparts. At the very least we need OfS to get round to telling us what’s happened to expenditure in this area following its relaxation of the rules.

We also must not let the government’s response to Augar off the hook on hardship either. The panel’s peg on maintenance was to use the then 21-25 National Minimum Wage rate as the benchmark on the basis that “80% of undergraduate students are under 25 in age”. Was that helpful?

This NMW site doesn’t think so. “The one major area where inflation remains high is housing” it notes, “which affects everyone but especially the poorest”. To put this into perspective, it goes on – a person earning minimum wage “would only just be able to afford a one bedroom flat in London. Providing they don’t eat, use power, pay council tax or wear clothes”. Or, indeed, buy books, join societies, or pay for graduation.

I should add here that swapping some loan for grant for the poorest students, as Augar recommended, would do nothing to help with their day to day costs and little to help with lifetime repayments either – as these are the students least likely to pay off in full anyway.

But as well as financial support, we should also be thinking short and hard about how we might act to get inflation for students down. Most student markets are a distorted sub-set of their parent markets, students are textbook vulnerable consumers (over more than just text books), and competition rarely works in their favour. A nationally coordinated effort on everything from transport costs to the length of reading lists, and from accommodation costs to gym subscriptions, should start immediately.

One response to “A student hardship crisis could be coming – here’s how to avert it

  1. Students will have to learn to budget effectively, less pissing money away up the wall/down the drain, and more self cooked food rather than take outs, this may cramp their style somewhat but it is possible, though Universities should be prepared for poor ‘student experience’ ratings as a result of such things out of their control.

    What also will need to be addressed is the effects on STAFF, especially the support staff, many of whom are already bordering the poverty line especially those in the South East outside of the ‘London weighting’ but not London commuting zone. The many years of below inflation pay rises cumulative effect and with the CPHI & CPI running a 3%+ in August (latest data) with the PPP (piss poor pay) offer and the very real probability of strike action looming along with staff illness due to stress (money worries are a significant factor, something I see too often as a Trades Union rep) Universities are in for a potential ‘perfect storm’ that will effect their ‘student experience’ ratings.

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