Student living cost support cut to lowest level in seven years

As we’ve noted here multiple times before, the Westminster government’s uplift on the value of maintenance loans (and PG loans and Disabled Students Allowance) is set to be just 2.3 per cent this September. I’ve compared that to RPI inflation before, and here IFS’ Ben Waltmann compares to a CPI projection of 8 per cent – reminding us that for the current academic year, the uplift was 3.1 per cent compared with CPI inflation of more than 6 per cent.

He’s also (as I did back in October) compared the maximum maintenance loan entitlement to that which a 22-year-old student would earn if they worked in a job that paid the National Minimum Wage instead of studying. Scandalously, the maximum loan this September will fall below that level for the first time since 2003/04.

That’s important because the Augar Review proposed linking the value of the maximum loan to earnings – the idea was to multiply the hourly minimum wage by the expected study time for a full-time undergraduate (37.5 hours per week over 30 weeks). But as we know, the government failed to respond to that chapter of Augar in its totality, proposing a miserly £75m national scholarship scheme for a handful of Charlie Buckets instead.

As Waltmann notes, the “in principle” policy position is that the government uprates the value of the maintenance loan (and related bits) not for earnings via the minimum wage but via inflation – and normally the fact that it uses the RPI (which has an upward bias) usually means that it goes up by more than actual inflation as measured by the change in the Consumer Prices Index (CPI).

But as we observed last week, because the government uses old ONS projections means that when you get sharp increases, students feel the impact of the failure to get the projection right in their pocket. This is not insignificant stuff – the forecast errors mean that students from the poorest families will be £1,200 down next academic year – around £100 per month.

The compound impact of these errors is the shameful bit:

Remarkably, there is no mechanism in place for these errors ever to be corrected. Below inflation increases in 2021/22 and 2022/23 will never be made up with above-inflation increases later on. As a result, the current maintenance loan cuts will in principle remain in place forever – unless and until policy changes.

And all of that ignores the other issue – the failure to update the household income threshold over which we start to deduct from the maximum loan since 2007. If you adjust for earnings, back in 2007 a student whose family earned £35k a year would have got the full grant/loan. These days we take £1,400 off the max loan on the basis that parents can afford to chip it in.

As Waltman argues:

The effect will be particularly painful in times of high inflation: many students’ parents will see their income rise in cash terms but fall in real terms. As a result, many students will be eligible for smaller maintenance loans, even though their parents will be less able to support them.

Walmann’s proposed fixes are simple – on inflation, use more recent forecasts and correct remaining errors when actual values are known in the following year, and index the parental earnings thresholds either to inflation or to a measure of earnings growth.

That of course is also exactly what the bulk of universities who offer bursary schemes should be doing too, lest the sector ends up compounding the problem locally.