Ashes to ashes, grants to loans: how scrapping maintenance grants will affect students

While at university they'll get more money than they did under the old system, and only students who go on to be high earners will pay back more.

"Many Students are going to be priced out of education if this grant is cut, many students will not be able to go, or be faced with enormous debt and will feel frightened of the huge lifetime loans." 38 Degrees Petition

It's A-Level results day, and all over the country licentious education editors are finding pictures of teenage girls jumping for joy to stick on their front page. However, not all students are flashing toothy grins at the cameraman. Next year's school-leavers will find no waiting maintenance grants. Instead, they'll find beefed up loans.

Looking at English students living away from home and outside of London, while next year's students will have up to £550 more cash in their pockets in each year of study, they'll also graduate to find up to £12,500 more debt on their Student Finance statements.

But because the government writes off student loan debts 30 years after graduation, most will end up paying no more because of the changes.

The people who will end up paying out more are students who came from lower income households and who go on to be in the top earning half of graduates.

How student finance works now

The government offers financial support for students to deal with tuition fees, and 'maintenance' (living expenses).

Currently, maintenance funding is split over grants and loans. Total support offered to a student falls with increasing household income, and the composition of that support shifts from grants to loans.

Full grants of £3,387 are given to students with a household income below £25,000, while students from households with incomes over £42,620 get no grant. They are, however, eligible for bigger maintenance loans. A student from a household with an income of £25,000 gets a loan of £4,047. If they came from a household earning just over £42,620, they'd be eligible for £5,740. The loan amount then falls again as household incomes rise.

The changes mean low income students will get more help, but it will all be loans

The summer budget replaced maintenance grants with beefed up loans worth up to £8,200.

As the Institute for Fiscal Studies (IFS) points out, students from low income households will have up to £550 more cash in their pockets each year than they would have if grants had just risen with prices.

They'll also have rather more debt. Because all of this support will be in the form of loans, they'll graduate to find an extra £12,500 outstanding on their already slightly-scary-looking Student Finance statements.

However, when it comes to student finance nothing is ever as straightforward as it seems.

Just because you owe more, doesn't mean you'll pay more

The government writes off student debts 30 years after graduation.

Many students from lower income households will be protected by that write off. Exactly how many depends on whether you look at the change independently of other changes that were announced over the summer of 2015.

Under the loan conditions in place before the summer, 65% of graduates who would have been given a full maintenance grant wouldn't have seen their repayments rise, as they wouldn't have paid off the lower loan, never mind a higher loan.

The same applies to 62% of graduates who would have received a partial grant.

The government has since frozen the level of earnings at which graduates have to start paying back their loans for at least five years. This means that graduates will have to start paying back their loans sooner than they would have done had the threshold increased with inflation.

The impact this has on students who would’ve received the maintenance grant is that slightly more will end up paying more.

The IFS told us that rather than 65% of graduates who would have been given a full maintenance grant not seeing their repayments rise, 59% won’t once the threshold freeze is taken into account.

The rest of these graduates will see a rise in their total repayments.

The group that are likely to make more repayments as a result of the changes are those who come from low to middle income households, and who will go on to be in the top earning half of graduates.

Will the changes put off low income students?

The application rate for students from disadvantaged areas rose after the 2012 reforms. However, as the IFS points out, that set of reforms saw students from low income households receive higher grants, and loan repayments for graduates with low incomes fell.

The total effects of the latest set of reforms are confusing. The IFS argues that as repayments for some students from low income households are going to rise, this could put some off from going to university. However, increased funding at university might encourage students who would have found attending to be a financial strain. In addition, low-earning graduates will probably not see their repayments rise.

As the IFS goes on to say, students coming from low income households are more likely to be low earning graduates, who are more likely to have some debt forgiven.

There is an additional point to be made. While average repayments for students from low income households are set to rise, it will be people in the top half of graduate earners who make the additional repayments.

In this sense, the people most likely to be discouraged are high ability potential students from low income households. At the same time, these students might not be put off if they have few highly paid career options without the access granted by a degree.

Update 1 March 2016

We updated the piece to incorporate the impact that the freezing of the earnings threshold has on students affected by the reform. This policy was introduced in autumn 2015, after a consultation on the proposed change.