Blog: How to target maintenance grants

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28 September 2018

Russell Group's Sarah Stevens writes on the benefits of introducing living wage maintenance grants.

In February, the Prime Minister Theresa May announced a review of post-18 education. A panel of experts, chaired by writer and former finance executive Philip Augar, is due to provide its recommendations in early 2019.

The Russell Group has submitted detailed evidence to the review on various aspects of the current funding system for HE in England. Above all, we stressed the need for the panel to adopt a whole-system approach to university finances, balancing the interdependent funding arrangements which support students with the joint research, teaching and civic missions of universities. One key aspect is living costs – a matter of concern for students and their families, particularly those from less well-off backgrounds.

While all students are entitled to maintenance loans to cover (at least some of) the cost of living during study, many are concerned about the extent to which it can add to their overall debt on graduation. Some may even be passing up an opportunity to go to university for fear of taking on debt.

Before 2016, the government provided means-tested maintenance grants of around £3,500 a year for students from households with incomes below £25,000 (with smaller grants tapering off for those from households with an income up to £45,000). But reintroducing this system would prove expensive for taxpayers. Under current government accounting rules, the Treasury would need to find an additional £1.6bn every year to fund these grants. Without new money being made available, this could lead to significant reductions in other budgets, for example, the extra funding allocations that support higher-cost STEM courses which are central to the UK’s long-term economic growth, or funding which provides support for disadvantaged students once at university. Given these financial constraints looking at other, more targeted options may be a more affordable approach.

A living wage

The Russell Group asked London Economics to model various options to help inform our submission to the government’s review of post-18 education and funding. One option stands out as striking a balance between providing more generous support for students from the most deprived backgrounds and remaining cost-effective for taxpayers: introducing a living wage maintenance grant for those students eligible for free school meals (FSM) during their school years.

Giving each FSM-eligible student access to an annual maintenance grant broadly equivalent to the national living wage (around £8,200) would significantly reduce (by £27,800, assuming they choose not to also take up loans) their total notional debt on graduation This should help to address concerns about affordability and debt burden for these students.

While this policy would add around £200m to the deficit, the long-run cost is likely to be much lower. This is because of the signalling effect which may help to drive social mobility, and because there would likely be a smaller outstanding loan book that would then need to be written-off after 30 years. Such an approach would also mirror some of the reforms which have emerged from the Diamond Review in Wales, which establishes a link between student living costs support and the national living wage.

A new fairness balance

Ultimately those who would benefit most would be individuals from deprived backgrounds who go on to earn high salaries. While it comes with a cost, it would be a small price to pay if it means that a wider pool of young people are encouraged to enter HE in the first place.

Our modelling focused on the costs and benefits of providing means-tested maintenance grants for full-time entrants to HE. There is also a case for extending the grants to those studying on a part-time basis, especially given that maintenance loans for these students are currently being rolled out. This would lead to an additional cost for taxpayers, but it could help to stem the decline in part-time students.

Reintroducing maintenance grants could help in addressing negative perceptions of debt. And doing so in a targeted way, focusing on students from the most deprived backgrounds, would be affordable for taxpayers. Pursuing this policy could build public confidence in a fairer student finance system which helps those students who need it most.

A change to the way that the government accounts for student loans as a result of the ongoing Office for National Statistics review on this issue could mean moving to a system which reclassifies loans which are unlikely to be repaid as grants. This could make it easier to introduce policies such as means-tested maintenance grants which support students who are unlikely to fully repay their loans.

Check out our series of briefings on policy options for Philip Augur’s panel to consider in its review of post-18 education fees.

(First published on WonkHE)