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IFS - Large real cuts to student financial support to become permanent

The government has allowed the large cuts to student support since 2020/21 to become baked in.

The government has announced yesterday how maintenance loans for university students domiciled in England will be adjusted for the academic year that starts in September. In line with previous policy, entitlements will rise with forecast RPIX inflation of 2.8%. In contrast to the last two adjustments, this increase is likely to be close to actual inflation if current forecasts prove correct, so maintenance entitlements next academic year will be worth roughly the same in real terms as this academic year.

But the big news here is what has not been announced. The government is not correcting large cuts to maintenance loan entitlements due to forecast errors made over the past two years, and it is also not putting in place a mechanism to correct forecast errors in the future. This means that students from the poorest families will in the future be around £1,500 worse off per year than they would have been if inflation forecasts over the past two years had been correct. Financial support for students will also continue to be determined by random errors in inflation forecasts. If inflation again turns out higher than forecast students will lose; while if inflation comes down faster than expected they will gain. This is not sensible policy. 

Ben Waltmann, Senior Research Economist at the Institute for Fiscal Studies, said:

“The most important part of this announcement is that the government has allowed the large cuts to student support since 2020/21 to become baked in. This means that merely due to inflation being higher than forecast, students from the poorest families will be entitled to £1,500 a year less in maintenance loans than if inflation forecasts had been correct.”

Kate Ogden, Senior Research Economist at the Institute for Fiscal Studies, said:

“The government’s framing of this announcement as a ‘cost of living boost for students’ is at best highly misleading. Maintenance loan entitlements will still be much lower in real terms than in 2020/21 in both this and the next academic year. At around £10 per student, the one-off additional hardship funding this year is a drop in the ocean. The continuing freeze in tuition fees, which was already announced in February last year, does not help students with their living costs at all and in fact squeezes the finances of the same universities that the government expects to step up support for students.”

Original article link: https://ifs.org.uk/news/large-real-cuts-student-financial-support-become-permanent

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