Student living costs support reduced to lowest level in seven years – Institute For Fiscal Studies

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In England, government support for the living costs of university students is almost entirely provided in the form of so-called maintenance loans. All students domiciled in England are eligible for these loans; the amount they can borrow depends on their family’s household income, whether they live at home during school terms and whether they are studying in London. These maintenance loans are in addition to any tuition loans and are repayable after graduation, but most students are unlikely to repay their loans in full before they are discharged from school. end of the 30-year repayment period (with no adverse consequences for graduates).

Students from poorer families living away from home during term time and studying outside London will be able to borrow £9,706 in the 2022/23 academic year. In real terms, this will be the lowest level in seven years; prior to 2016/17, total support was lower, but a substantial proportion of it was provided in the form of grants rather than loans (see Figure 1). At just 2.3%, the increase in rights cash terms this year will be well below CPI inflation, which is expected to be around 8% over the forecast period.[1] This will add to a similar shortfall for the current academic year, when the rise was 3.1% against CPI inflation of over 6%. For the first time since 2003/04, the maximum maintenance loan entitlement will also be more than £1,000 less than what a 22-year-old student would earn if working in a job that paid the national minimum wage in place to study.

Chart 1. Maximum maintenance support (loans and grants) versus minimum wage earnings (2021/22 prices)

Note: All monetary amounts are expressed in real CPI terms. In order to align with government calculations, the price level for an academic year is taken as the price level of the first calendar quarter falling in that academic year. For each academic year, the table reflects the retention system as it applies to new students.

For minimum wage calculations, the academic year runs from the beginning of October to the end of September, and the minimum wage at age 22 is used. Following Augar’s review, minimum wage earnings are calculated by multiplying the hourly minimum wage by the expected study time for a full-time undergraduate student (37.5 hours per week over 30 weeks) .

Source: House of Commons Library; The low wages Commission; author’s calculations.

The reductions in real terms of maintenance loans are not supposed to happen. According declared policy, the government aims to “ensure that students do not suffer a real reduction in their income”. In fact, the annual increase in maintenance fee cash terms is supposed to reflect the change in the retail non-mortgage interest price index (RPIX), a measure of inflation with a well-documented upward bias. , so maintenance fees should generally increase by higher inflation than actual inflation as measured by the change in the consumer price index (CPI). This is indeed what happened between the last major reform of the system in 2016/17 and the academic year 2020/21: each year, maintenance rights have increased slightly in real terms. So why are they falling now?

The reason for this is that instead of being based on actual RPIX inflation, the annual maintenance fee increases are based on RPIX inflation as predicted by the Office for Budget Responsibility (OBR) years in advance. For example, the 2.3% increase for the 2022/23 academic year was taken from the OBR projections of November 2020. But these projections are now terribly outdated, as inflation has been much higher higher than expected at the time. If the government were to use the most recent OBR projections from March 2022, the increase would be 9.2%, as the forecast RPIX inflation for 2022/23 is now much higher. The same thing happened with the increase for the current academic year: with inflation being higher than originally expected, the increases in child support entitlements were well below inflation in the CPI and the RPIX.

The reductions resulting from these forecast errors are significant. For the poorest students, the loan entitlement would already be £9,980 in the current academic year if the RPIX inflation forecast between 2020/21 and 2021/22 had been correct, and would be £10,860 £ over the following academic year if the rise was in line with the OBR’s latest forecast for RPIX inflation. This means that simply due to forecasting errors, students from poorer families will lose £1,200 out of pocket in the next academic year, or around £100 a month.[2]

It is remarkable that there is no mechanism in place for these errors to be corrected. Lower than inflation increases in 2021/22 and 2022/23 will never be matched by higher than inflation increases later. As a result, the current maintenance loan cuts will in principle remain in place forever – unless and until the policy changes.

In addition to these furtive reductions in the level of alimony rights, there is a freezing of the parental income thresholds which govern eligibility for means-tested alimony. The lower parental income threshold, below which students are eligible for the maximum maintenance loan, has been frozen in nominal terms at £25,000 since 2008 (if it had been indexed to average earnings it would now be around £35,000). But its effect will be particularly painful in times of high inflation: many parents of students will see their income rise in monetary terms but fall in real terms. As a result, many students will qualify for smaller maintenance loans, even though their parents will be less able to support them.

The government should urgently review the way child support entitlements are determined. Although reasonable people may disagree on the appropriate level of cost-of-living support for university students, it makes no sense that it is determined by errors in inflation forecasts. A simple solution would be to use more recent forecasts and correct the remaining errors when the true values ​​are known the following year.[3]Freezing parental income thresholds in nominal terms doesn’t make sense either; they should be indexed either to inflation or to some measure of income growth.

In particular, the government already has a plan for a better maintenance system: its own Augar Review of Post-18 Education, published in 2019, made a number of sound suggestions for reforming the maintenance system. These included the reintroduction of maintenance subsidies replace part of the means-tested maintenance aid; tying the maximum rate of maintenance support directly to national minimum wage earnings for 21-24 year olds; and indexation to inflation of parental income thresholds for maintenance assistance. Unfortunately, the government chose to ignore all of these recommendations in its response to Augar’s review earlier this year. It is high time for him to take another look.

[1] In order to align with government calculations, the price level for an academic year is taken as the price level of the first calendar quarter falling in that academic year.

[2] This calculation is based on students spreading their maintenance loans over an entire year (12 months). In practice, many students rely on other sources of funding outside of term time, so the monthly sterling reduction during term time will usually be even greater.

[3] It is understandable that the regulations must be drawn up in good time before the start of the academic year. But the regulations for 2022/23 were tabled in Parliament in December 2021, when the OBR had already produced two sets of forecasts more recent than the November 2020 forecasts that had been used.

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