UK university students face maintenance loan cuts

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The government is using high inflation as a cover to hit students, graduates and universities. Photo: Getty

The government is tightening the financial screws on university students who face a substantial reduction in the value of their maintenance loans, according to a new report from the Institute of Fiscal Studies.

All UK university students will see a decrease in the value of their loans as the parental income threshold is frozen in terms of cash flow and the increase in loans is below inflation.

The threshold below which students are eligible for full maintenance loans – funding for day-to-day expenses paid directly into their bank accounts in installments – has remained at £25,000 in cash since 2008.

If it had risen in line with average earnings, it would now be around £34,000.

Read more: UK inflation hits 30-year high as cost of living squeeze looms

Ben Waltmann, senior research economist at the Institute for Fiscal Studies, said: “The government seems determined to use high inflation as a hedge to reduce the cost of student loans for taxpayers.

“Significant real-term reductions in maintenance loans could cause real hardship for students on tight budgets.”

Many universities offer hardship funds for low-income students, students with disabilities, and those who qualify for certain benefits.

However, it is not just students on tight budgets who are affected, graduates will have to give up more of their disposable income as the student loan repayment threshold is also frozen in terms of cash flow.

Waltmann added: “A reimbursement threshold freeze hits mostly middle-income graduates, whose budgets are already squeezed by the rising cost of living, personal allowance freeze and National Insurance hike.

“Extending the maximum fee freeze will add further pressure on universities, while only benefiting the highest-earning graduates.”

Chart: Institute for Tax Studies

Chart: Institute for Tax Studies

A graduate earning £30,000 will have to pay £113 more on their student loan in the next tax year than the government previously announced.

On the other hand, some criticize the government for its decision to freeze tuition fees – a decision that will affect universities and mainly benefit taxpayers.

Currently, universities can charge UK undergraduates up to £9,250, which has not changed since 2012 when they were able to charge up to £9,000.

Read more: Bank of England raises interest rates to 0.25% amid runaway inflation

Britain's former Chancellor of the Exchequer George Osborne arrives May 2, 2017 in London on May 2, 2017 as editor of the London Evening Standard newspaper.  When announcing his nomination, Osborne, 45, said he was

Former Chancellor of the Exchequer George Osborne tripled tuition fees to £9,000 a year in 2010. Photo: Getty

A tuition loan is paid directly to the university or college on behalf of the student.

The continued freeze means that there will be significant reductions in real terms for the academic year, given the high level of inflation.

If the maximum fee were to be increased with projected RPIX inflation, from the 2020-21 level, it would need to be nearly £10,500 in 2022-23.

Watch: How long does it take to pay off a student loan

By contrast, the taxpayer will benefit to the tune of £1bn per cohort from the freeze in maximum royalties between 2020-21 and 2022-23 alone.

In total, the government is saving £2.3bn on student loans under the guise of high inflation, according to calculations by the Institute of Fiscal Studies.

Watch: How to Solve the Inflation Problem

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