The Abolition of Maintenance Grants

In the Conservative government’s July 2015 budget it was announced that students beginning university in the academic year 2016/17 will no longer be eligible to receive maintenance grants, a non-repayable cash sum given to students whose household income is lower than £25k p.a. Maintenance grants will also be made unavailable to students belonging to households with incomes of £42,620 or below who are presently eligible for partial grants. They are to be replaced with maintenance loans of up to £8200 a year. Over a three-year course, this could mean an increase in overall debt for some students of £12,000. Given that as of last academic year 56% of students were eligible for some form of maintenance grant, this will likely affect a large number of future students. [1]

This decision has been met with vituperative remonstrations from groups like the NUS and the National Campaign Against Fees and Cuts (NCAFC). I believe, however, that it is important to recognise that some of the notable objections to the abolition of maintenance grants are erroneous.

It is not the case that these changes will make university “unaffordable” for potential students from the lowest income households. In fact, because of the scale of the concomitant increase in the amount students can receive in maintenance loans, total available maintenance support will increase by £766 a year for the poorest students.[2] This should be welcome, given that the information from BIS’s Student Income and Expenditure Surveys and Unipol[3] demonstrates quite clearly the financial hardships students often face as a result of living costs. The NUS has even run a ‘Pound in Your Pocket’ Campaign to highlight this issue. There is also research suggesting that students would prefer greater financial support throughout their studies, even at the cost of higher loan repayments later on.[4]

Although there is empirical evidence suggesting that those from households with lower incomes are more likely to be averse to debt[5], there is very little evidence indicating that there will actually be a deterrence effect resulting from increasing maintenance loans. As the Browne report correctly noted, the trebling of tuition fees in 2006 did not deter the participation of disadvantaged groups in higher education[6]. The Coalition government’s increase in tuition fees to £9000 in 2012 has also had no discernable effect, with record levels of students from less privileged backgrounds now attending university.[7]

A study published by the OECD in 2013 found that, prior to the 2012 increase in tuition fees, UK graduates earned a lifetime premium of £117,000 over non-graduates[8]. Research released by Adzuna last year found that this life-time earnings advantage may even be as large as £500,000 on average[9]. The evidence is clear that the benefits and opportunities graduates can expect to receive as a result of getting a degree significantly exceed the costs of attending university, estimated at present to average around £44k. This will continue to be the case despite George Osborne’s policies.

Under the existing system, graduates pay 9% of their annual earnings above the £21k threshold. The higher loans being introduced as a replacement for maintenance grants will simply be added to students’ overall debt and will not affect the rate at which individuals repay that debt. Since repayments are earnings related they are inherently affordable. In addition, debt not repaid after 30 years is written off. As a result, around 60% of students will not fully repay their debts.[10] Therefore, as the IFS noted, “it will be graduates from lower-income backgrounds who go on to be higher earners (in the top half of the earnings distribution) who will make these additional repayments” as a result of maintenance grants being abolished.[11]

I raise these points primarily because I think it is irresponsible to fear-monger about HE being made “unaffordable”, which, by obscuring the facts of the matter, may very well itself deter some potential students from attending university.

There are, nevertheless, two particularly compelling arguments in favour of retaining maintenance grants.

Firstly, it is legitimate to seek to make student finances as equitable as practically possible. Under the existing system, the very wealthiest students can leave university entirely debt-free if their parents can afford to pay tuition fees and living costs up-front. There is no reason for further compounding existing iniquities, by ensuring not only that the wealthiest students have the least debt, but, as BIS acknowledges[12], that the poorest will have the most; it is simply wrong to impose a penalty on graduates just for having been economically disadvantaged, however wealthy they may need to be in order to have to pay it. The abolition of maintenance grants is a tax on the aspirations of the disadvantaged and is unjust for that reason alone.

Secondly, the government’s argument that maintenance grants need to be cut in order to save public money is dubitable. The July Budget claimed that scrapping Maintenance Grants would save £2.5 billion by 2020-21.[13] The OBR’s July 2015 Economic and Fiscal Outlook[14], however, reveals that government ‘outlays’ on issuing student loans will actually increase by £3bn over that period as a result of getting rid of maintenance grants and increasing maintenance loans. That increase will not be registered in the figures for public sector net borrowing because they are loans; it is only if loans are not fully repaid within 30 years that there is officially any government debt recorded as a result of issuing them. The OBR also noted, however, that because “lifetime earnings are positively correlated with parental household income, write-off rates on these loans would be higher than in the student loan population as a whole”.

All this ultimately means that, as a result of this government’s changes, although some graduates will repay more student debt, the government will also spend more on higher maintenance loans with a lower repayment rate. The government’s £2.5 bn savings figure is merely a cosmetic political accounting trick to reduce the headline deficit figure over this Parliament. Over the long-term, the IFS has estimated that “repayments from students on the extra debt issued will exceed the extra up-front government spending by approximately £270 million”[15], a figure far short of the £2.5 billion savings the governments claims it will make. Moreover, it could easily turn out that the government’s changes will cost the taxpayer more over the long-term, if the ‘Resource Accounting and Budgeting (RAB) charge’- the proportion of the amount issued in students loans which will not be repaid- increases more than in BIS’s projections, as has repeatedly happened in the past.

In response to this it could be argued that the government’s changes are at the very least an almost revenue neutral way of ensuring poorer students get greater financial support whilst studying, such that the inequity of them is a price worth paying. This argument is not very persuasive, as there are alternative means by which the government could increase financial support to disadvantaged students in a revenue-neutral way which are not so inequitable- such as increasing the principal or interest accrued on student loans for everyone. Whatever else might be said against that, it cannot be claimed “there is no alternative” to blithely ignore the transparent inequity of scrapping maintenance grants.

It is very difficult to provide a reasonable justification for getting rid of maintenance grants. More pernicious, however, is the government’s announcement of a consultation on freezing the repayment threshold for student debt, so that it is eroded in real terms by inflation. This will, the IFS observes, disproportionately impact poorer students and graduates.[16]

 

 

 

 

 

1 Hubble, S., Bolton, P., ‘Abolition of Maintenance Grants in England from 2016/17’, HoC

Library BP No. 07258, 19 January 2016, p. 4

2 GOV.UK Higher Education finance changes, 9 July 2015,

https://www.gov.uk/government/news/higher-education-student-finance-changes [acc.

24/01/16]

3 Accommodation Costs Survey, 2016, Unipol, NUS

4 ‘Student Funding Panel: an analysis of the design, impact and options for reform of the

student fees and loans system in England’, Universities UK, June 2015

5 Callender, C., Jackson, J., ‘Does the Fear of Debt Deter Students from Higher Education?’,

Journal of Social Policy, 34 (4), 2005, pp. 509-540

6 ‘Browne Report: Independent Review of Higher Education Funding and Student Finance’,

October 2010, p. 20

7 ‘More lower-income students going to university despite tuition fees’, The Guardian, 19

December 2014

8 Buchanan, R. T., ‘University degrees are worth over £100,000 in additional earnings’, The

Independent, 27 June 2013

9 Anderson, E., ‘Graduates earn £500,000 more than non-graduates’, The Telegraph, 16 July

2015

10 Ross, T., ‘Six in 10 students will have their debts written off’, The Telegraph, 5 April 2014

11 Britton, J. et al., ‘Analysis of the higher education funding reforms announced in Summer

Budget 2015’, BN174, Institute for Fiscal Studies, July 2015, p.16

12 ‘Freezing the student loan repayment threshold: Equality Analysis’, BIS, November 2015,

p. 66

13 Summer Budget 2015, HM Treasury, July 2015, p. 59

14 OBR Economic and Fiscal Outlook, July 2015, p. 142

15 Britton, J. et al., ‘Analysis of the higher education funding reforms announced in Summer

Budget 2015’, BN174, Institute for Fiscal Studies, July 2015, p. 20

16 Bolton, P., ‘The Value of Student Maintenance Support’, HoC Library BP No. 00916, 18

January 2016, p.8

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