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Budget 'means poor students will have bigger debts'

Published 21/07/2015

Poor students will leave university owing 12,500 pounds more than their wealthier counterparts, it is claimed
Poor students will leave university owing 12,500 pounds more than their wealthier counterparts, it is claimed

Students from poor backgrounds will leave university owing "substantially" more debt than their richer classmates because of George Osborne's summer Budget, according to new research.

The poorest 40% of students going to English universities will graduate with debts to the state of up to £53,000 from a three-year course, thanks to Mr Osborne's decision to convert maintenance grants into loans, the independent Institute for Fiscal Studies has found.

The loans will give students from low-income households more spending cash at university, but will mean they leave with debts averaging £12,500 more than those from wealthier homes.

The move will reduce Government borrowing by £2 billion a year in the short term. But actual savings in the long run will be far smaller - around £270 million from each year's intake of students - because all but a quarter of the additional loans will be written off as around two-thirds of the graduates affected will not earn enough over their working lifetimes to repay in full.

Meanwhile, graduates will pay an average of around £3,800 more over the course of their careers because of Mr Osborne's freeze on the earnings level at which they have to start repaying their debt, which will stay at £21,000 for the next five years.

The freeze will save the Government around £1.4 billion in the long run for each year's student intake.

And it will hit middle-income graduates hardest, with those on median average salaries for people with degrees paying £6,000 more in total. The highest-income graduates will not be affected by the change in the threshold because they would anyway be expected to pay off their loans in full.

IFS research economist Jack Britton said: "While the small increase in support for living costs available to students from lower-income families will undoubtedly be welcomed by many, 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."

University and College Union general secretary Sally Hunt said: "The Government has created a situation where the poorest students that aspire to university will have to take on much larger debts and be hit with bigger annual repayments once they graduate. It is little more than a tax on aspiration and exposes this Government as certainly not being on the side of the strivers."

A spokesman for the Department of Business, Innovation and Skills said: "The Government is committed to widening access in higher education and anyone with the ability to succeed should have the opportunity to participate, regardless of their background or ability to pay.

"The changes announced in the Budget provide students with more money in their pockets to help with living costs while studying. Lifting the cap on student numbers also means that more people will be able to benefit from higher education than ever before."

Shadow business secretary Chuka Umunna said: "After trebling student fees in the last parliament, now ministers are burdening the poorest students with more debt while cutting funding for universities.

"Instead of investing in future generations the Government is making life harder for people who want to get on, massively increasing the cost of higher education, particularly for the poorest students."

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