Government support for the poorest university students will fall to its lowest level for seven years in 2022-23, according to new analysis.
The Institute for Fiscal Studies (IFS) said that as maintenance loan entitlements fail to keep pace with rising levels of Consumer Prices Index (CPI) inflation, even students eligible for a maximum maintenance loan would have to make do with far less than they would make earning the minimum wage.
The IFS said the cutbacks in support were due to forecasting errors, as annual rises in maintenance loans were based on predictions of inflation rates made years in advance, while inflation has recently been much higher than forecast.
It says that at just 2.3%, the cash-terms increases for loans for the 2022-23 academic year would fall “far short” of inflation, set to be around 8% over the same period.
It said this will add a “similar shortfall” for the current academic year when the uplift was 3.1% compared with inflation rates of over 6%.
As a result, students from the poorest families would lose £1,200 in the next academic year, the equivalent of £100 a month compared with the support they would have received if forecasts of inflation had been accurate.
The IFS said this was the first time since 2003-4 that the maximum maintenance loan entitlement would fall over £1,000 short of what a 22-year-old student would earn if they were being paid National Minimum Wage instead of studying.
The IFS added that this came after a long-running freeze on the parental earnings thresholds for getting means-tested maintenance support, with the lower threshold frozen at £25,000 since 2008, whereas had it been indexed in line with average earnings it would be around £35,000 now.
It said that as a result of the freeze, “many students will be eligible for smaller maintenance loans, even though their parents will be less able to support them”.
“Real-terms cuts in maintenance loans are not supposed to happen,” Ben Waltmann, a senior research economist at the IFS said.
He added that according to its stated policies, the Government aims to “ensure that students do not suffer a real reduction in their income” and that the cash-terms increase in maintenance loans should reflect a change in the Retail Prices Index excluding mortgage interest, an inflation measure with a known upward bias.
“So maintenance entitlements should typically be going up by more than actual inflation measured by the change in the Consumer Prices Index (CPI),” he said.
The IFS recommends using more recent inflation forecasts and correcting any remaining inaccuracies when the actual rates of inflation are known the following year. A simple fix would be to use more recent forecasts and correct remaining errors when actual values are known in the following year.
It says that otherwise, recommendations from the Augar Review of post-18 education to tie maintenance loan increases to a rise in the minimum wage, while parental earnings thresholds should be linked to inflation or a measure of earnings growth, should be implemented.
“None of this is affected by Friday’s announcement of a change in the way the Government sets student loan interest rates, which avoids the ‘interest rate roller coaster’ we had warned about in April,” the IFS said.
“While that change is welcome, it will do nothing to ease current cost-of-living pressures for students – and indeed for the vast majority of graduates.
“This is because most of those with undergraduate loans will likely never pay off their loans in full, so the interest rate never affects their repayments.”
For those who do repay in full, interest rates would only typically impact their monthly payments in their late 40s or early 50s, the IFS said.
Mr Waltmann said: “In the coming academic year, government support for student living costs will be cut to its lowest level in seven years, which will cause genuine hardship for students on tight budgets.
“Bizarrely, this is happening because student maintenance loan entitlements are routinely adjusted based on outdated inflation forecasts, and forecast errors are never corrected.
“This makes no sense at all. The Government should use more up-to-date forecasts and correct for any errors in the following year to avoid permanent cuts. Alternatively, maintenance entitlements could be tied to earnings on the minimum wage, as proposed by the government’s own Augar Review.”
National Union of Students president Larissa Kennedy said that the student cost-of-living crisis was pushing students “to the brink”.
“We’re hearing from students who are working three jobs to make ends meet, who can’t even afford to travel to their university library, and who are cutting back on cooking food due to spiralling energy costs,” she said.
“Our research has shown that thousands more are relying on foodbanks and buy now, pay later loans from companies like Klarna.”
“Students aren’t cash cows. We are at breaking point, and we’re desperate for something radically different,” she added.
Matt Western, Labour’s shadow higher education minister, said: “As households grapple with rapidly rising costs, the Conservatives are too distracted propping up a law-breaking Prime Minister to tackle the cost of living.
“Leaving students worse off in the face of rising food and energy bills risks putting young people off university altogether. This government is failing to support students and young people on every level.”
A Department for Education spokesperson said: “We have increased maximum grants and loans for the next academic year to help protect students from the rising cost of living.
“Students from the lowest-income households have access to the largest ever amount of support for their living costs in cash terms, and we have asked the Office for Students to protect the £256 million available to support students.
“This is in addition to the £144 million the Government has made available to help people on low incomes which many students will be able to access, and on top of universities’ own hardship funds.”
