Students to lose out on £1500 as maintenance loans fail to keep up with inflation

09 January 2023

The Russell Group has warned that students stand to lose out on £1500 a year as maintenance loans fail to keep up with inflation.

The warning comes ahead of an expected decision by the Department for Education (DfE) in January on how much maintenance loans will increase by in 2023/24.

Should the DfE uprate maintenance loans by the most recent projection for Q1 2024 (2.8%), a full-time student living away from home outside London will receive £9,978, leaving them £1,523 short of the £11,501 the loan would be had it increased by actual inflation since 2020/21.

The DfE's use of projections that can be almost 2 years out of date, alongside sudden increases in inflation from factors such as the pandemic and war in Ukraine, has meant its inflation forecasts have been inaccurate in each year since 2020/21. With no mechanism in place to correct for inflation, it means a significant real terms cut has been baked into the system since 2020/21.

In the short term, the Russell Group is calling on the Government to uplift maintenance loans so they reflect actual inflation since 2020/21. This change should be made in-year, ensuring swift support for students who might be struggling and ensuring loans keep up with costs.

In the longer term, the Russell Group has recommended changes to the existing system to protect students against sudden increases in inflation in future. For example, a mechanism allowing actual inflation figures to be used when they turn out to be significantly higher than the forecasts. Other measures that could help those most in need include a review of the parental earnings threshold, which has been frozen at £25,000 since 2008, meaning fewer students are entitled to the maximum level of support each year, as well as consideration to the reintroduction of maintenance grants.

Commenting, Dr Tim Bradshaw, Chief Executive of the Russell Group, said:

"Students are struggling with the rising cost of living and while our members are doing what they can to help, including investing millions of pounds in hardship support, we are concerned about the impact on students’ wellbeing and their studies.

"It’s particularly frustrating to see those challenges exacerbated by the use of a model that means students are set to be £1500 worse off next year, especially when it can be so easily fixed and it relates to a loan that is paid back by the student.

"We are calling the DfE to take this opportunity to deliver a fair deal for students and improve the system so it is fairer going forward."

Russell Group universities are stepping up support to help students through the cost-of-living crisis and ensure they can continue in their courses, committing tens of millions of pounds of additional hardship funding, bursaries, and other financial assistance. To support this, the Russell Group is calling on the Government to extend its own hardship funding, which could help universities provide additional invaluable targeted assistance to those most in need.

As well as significantly increasing student financial support, Russell Group universities are taking a range of other measures to help students with day-to-day living costs reflecting local circumstances, including providing subsidised food, extending access to campus facilities, and looking for ways to extend campus employment opportunities.     

Notes

• The most recent OBR projections for RPIX inflation in Q1 2024 are 2.8% (October 2021 projection), 1.8% (March 2022) and 2.8% (November 2022).
• Even if the loan is increased by the higher of the projections (2.8%), the loan amount for a full-time student living away from home outside London will be £9,978, which is £1,523 short of the £11,501 the loan would be had it increased by actual inflation (RPIX) since 2020/21. Instead, in each year since 2020/21 the projected figure used to uprate the maintenance loan was lower than the actual inflation figure, effectively ‘baking in’ a real terms cut.
• The inflation projection used by DfE to decide on the maintenance loan uplift for 2022/23 was taken from the November 2020 OBR release.
• The lower parental earnings threshold – below which students are eligible for the maximum level of maintenance support – has been frozen in nominal terms at £25,000 since 2008, even as average earnings have risen significantly. In December the IFS reported that had the parental threshold increased with earnings this would be closer to £35,000.

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