New proposals for student maintenance system at no extra cost to public finances

New research published today by the Sutton Trust has laid bare the extent to which the poorest students are being hit hardest by debt and cost of living challenges.

Since the abolition of maintenance grants in England, students from lower income backgrounds have been leaving university with the highest levels of debt. New analysis by London Economics for the Sutton Trust estimates that poorer students could graduate with £60,100 of debt, 38% higher than the £43,600 for those from wealthier families, with the gap largely driven by the need to take out maintenance loans.

Despite racking up the largest debts, students from lower income families, who are less able to rely on family members for support, are also struggling to cover their basic living costs, as the level of government loans has not kept pace with rocketing inflation. Students living away from home outside of London can currently receive a maximum maintenance loan of £9,978 per academic year, but their average level of spending just on essentials such as food and rent is £11,400.

Essential costs are higher than the maximum available loan for 57% of students. For 19% of students housing costs alone are higher than the available loan, and a third (33%) of students from working class families have skipped meals to save on food costs. Others have taken on extra part-time work, with almost a quarter of students reporting they had missed a course deadline because of their job.

As students from disadvantaged backgrounds are also the most debt averse, there’s a risk that the current system will increasingly deter poorer students from attending university, or restrict their options to those closer to home. Young people in school are increasingly concerned about their future cost of living – of those with financial worries about university, the proportion citing the cost of living has increased from 17% in 2014 to 29% in 2023.

As well as the amount being insufficient, eligibility for maintenance loans is also shrinking. Parental income thresholds, used to determine the income levels at which parents are expected to contribute to their child’s living costs at university, have remained frozen. If these thresholds had increased with inflation since 2016, families on £32,535 or less would be eligible for the maximum loan, compared to the current much lower threshold of £25,000. This locked out an estimated 30,000 students starting university last autumn from taking out the maximum level of support, putting more pressure on themselves and their families.

The Sutton Trust has therefore put together a package of proposals, with modelling that shows how one of these proposals, alongside other changes in the system, could be achieved with little or no additional costs to public finances. This involves:

  • The re-introduction of maintenance grants for poorer students in England to reduce debt and better align with the approach in the rest of the UK.
  • An increase in the overall amount of maintenance available, to better reflect students’ costs.
  • A widening of eligibility for support, by increasing the parental income thresholds used to determine how much support a student can receive – these loan thresholds have been frozen since 2016 despite rampant inflation.
  • Changes to repayment terms to make the system more progressive, with lower overall repayments for lower income graduates, and higher for higher earners in the long term. However monthly repayments would reduce, meaning an effective ‘tax cut’ for all graduates in terms of their monthly outgoings on graduation.

The current Conservative Government has not announced any plans to reform student maintenance, with levels only due to rise by 2.5% in 2024/25, still far behind recent inflation. The Labour party has indicated that it would reform the student finance system, stating that it would “ensure we support the aspiration to go to university” in government. However, it has largely focused on potential changes to the repayment system and has not made any commitments regarding the amount of maintenance support students receive, or on the re-introduction of maintenance grants in England.

Sir Peter Lampl, Founder of the Sutton Trust and Founder of the Education Endowment Foundation, said:

“It’s outrageous that the poorest students are racking up the highest levels of debt. These students are the most debt-averse, so under the current system this increasingly deters them from going to university.

“All political parties must commit to re-introducing maintenance grants, and overall levels of maintenance should be increased, so that students can meet their basic needs without graduating with excessive debt. There’s absolutely no excuse for failing to create a fairer system.”

Notes to Editors:

How this system would work:

The Sutton Trust’s briefing includes modelling by London Economics, with several options for structuring a more progressive system at various cost levels to the Treasury. One of these proposals can be achieved with little or no additional cost to public finances.

Providing £11,400 per year in maintenance support for students from the poorest homes, including £4,121 in non-repayable grants, would halve the gap in debt between the poorest and wealthier graduates. The grant would then reduce for those whose parents earn over £32,525 per year, with loans increasing as a proportion as the overall amount of maintenance available reduces. Maintenance support would taper down to £4,651 at parental earnings over £80,921 a year.

Under this scenario, the poorest students’ debt on graduation would fall from £60,100 to £52,400. For students from the richest families, debt on graduation would only be slightly higher than under the current system (£44,200).

And to keep this scenario cost-neutral a stepped repayment model could be introduced, whereby graduates would only pay 2% on their earnings from £25,000 to £35,000; 4% on earnings between £35,001 and £45,000; 6% on earnings of £45,001 to £55,000; and 8% on earnings above £55,000. In addition, the re-introduction of real interest rates would see increases from 0% for those earning below £25,000, to gradually reach 3% for those earning over £55,000. And instead of the previous 3% interest rate while students are studying, here that rate would only be 1.5%.

These changes to repayment terms would be cost neutral to the Exchequer, with the average cost per student staying approximately the same (£1,600). All graduates would have lower monthly repayments  than under the current system. Although low- and middle-income graduates may not clear their loans under either system, their monthly repayments would be lower, therefore paying less than they currently do overall. High income graduates would make larger lifetime loan repayments, as the combined re-introduction of real interest rates (RPI + interest repayments) and lower repayment rates would keep these graduates in repayment for longer (whereas they pay off their loans relatively quickly under the current system).

For example, those earning £50,000 would pay just £75 a month under these reforms, compared to £188 under the current system. Graduates earning £75,000 pay £375 per month in the current system, but would pay just £233 per month with these changes. And looking at someone earning £100,000, while they pay £563 per month in the current system, under this proposal their repayments would reduce to £400 per month.

  • Figures on students’ spending on essentials can be found in the Sutton Trust’s Student maintenance analysis 2023
  • Figures on students skipping meals can be found in the Sutton Trust’s Cost of Living and University Students report.
  • The Sutton Trust’s polling on students taking on part-time work is available here.
  • Figures on secondary school pupils’ concerns about higher education are taken from new data released by the Sutton Trust, from the Ipsos Young People Omnibus 2023. 3,407 interviews were conducted with school children aged 11-17 in schools in England and Wales. Fieldwork took place between 6th March and the 21st July 2023.
  • 2016 was used by London Economics for the uprated modelling as 2016-17 was the academic year when maintenance grants were abolished in England and the system was moved to the current maintenance loan only system.

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