UK Student Debt Likely to Rise If Maintenance Grants Scrapped


English students coming from poor families could find themselves owing up to £53,000 ($83,000 USD) in student debt should government maintenance grants be scrapped and replaced with loans, the Institute of Fiscal Studies (IFS) says. The government has announced an initial £2 billion annual savings by cutting maintenance grants, which cost taxpayers £1.57 billion a year.

Jack Britton, a research economist at the IFS, said that the policy shift has serious consequences for lower-income students:

“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.”

The IFS think tank says that only about 25% of these debts can be repaid and that the real savings for the government will be no more than approximately £270 million. The proposal by Conservative government and George Osborne means that if the maintenance grants are replaced with student loans, about four in ten UK students coming from a poor background will have an £12,500 extra debt by the end of their three-year undergraduate studies. The proposal is to take effect in 2016.

Students are up to this day eligible for a grant of up to £3,500 per year as a way of covering daily expenses such as living expenses. Students can take a loan to cover tuition fees.

The maintenance grants will be replaced with a student maintenance loan of up to £8,200. At the moment, more than 500,000 students from poor backgrounds receive the maintenance grant. This initiative will help make higher education accessible to more students, the government says.

Students begin repaying their loans when they start earning over £21,000. However, George Osborne is looking into revising this standard as that will mean more students being able to repay their debts. BBC reports:

“If repayments were fixed at the present level of £21,000 for five years, not rising with inflation, the IFS estimates overall graduate loan repayments would increase on average by a further £3,800 per student.”

While the new maintenance loans will mean £550 or more pocket money per year extra for poorer students, it also means over £10,000 extra in student debt by the time they graduate.

University and College Union leader Sally Hunt said the proposal is unfair for struggling young people who want to benefit from higher education:

“It is little more than a tax on aspiration and exposes this government as certainly not being on the side of the strivers.”

Middle-income students will pay on average £6,000 more per year until they repay their student loans if the proposal is put into effect. Britton says that only time will tell whether these higher education reforms will be good or bad:

“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.”