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Poorest students will ‘owe £53,000’ under maintenance grant reforms

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21/07/2015
England's poorest students could end up with debts of £53,000 under plans announced in last month's Budget to replace maintenance grants with loans.

Analysis by the The Institute for Fiscal Studies (IFS) found that the poorest 40 per cent of students going to university in England will be left with debts of up to £53,000 from a three-year course (rather than up to £40,500).

It found that replacing grants with loans will raise debt for the poorest students, while doing little to improve government finances in the long run.

Two major changes to student finance were proposed in the Emergency Budget. The replacement of maintenance grants by loans from 2016–17, and the freezing of the repayment threshold for loans.

Students from households with pre-tax incomes of up to £25,000 (those currently eligible for a full maintenance grant) will have a little more “cash in pocket” while at university, but will graduate with around £12,500 more debt, on average, from a three-year course. This means that students from the poorest backgrounds are now likely to leave university owing substantially more to the government than their better-off peers, the IFS said.

Freezing the repayment threshold

If enacted, the proposal to freeze the repayment threshold for student loans at £21,000 for five years will have the greatest impact on graduate repayments. This means that repayments will start at a lower level of income than previously expected (close to the value of the pre-2012 threshold of £15,000 in real terms by the end of the freeze period).

This change will hit middle-income graduates hardest, as they will end up paying more per year for the majority of the repayment period. The IFS estimates that an individual on median graduate earnings will repay over £6,000 more in total in 2016 money.

Jack Britton, research economist at the IFS, said: “The switch from maintenance grants to maintenance loans will result in substantially higher debt for the poorest students. For most, though, it is the freezing of the repayment threshold which will do more to raise loan repayments, and hence increase the cost of higher education.

“The 2012 reforms appear not to have had a negative effect on higher education participation amongst full-time students from poorer backgrounds. This likely reflected the fact that the system was designed to protect both that group and those with low expected lifetime earnings. Only time will tell whether these new changes will be similarly benign in their effect.”

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