The papers are full of the row over the Government scrapping student grants. As usual when it comes to student finance, the political invective has clouded the actual practical financial impact on students and there’s huge confusion and panic among students and parents.
So I wanted to knock out a quick blog, based loosely on some of the questions that have come to me via Twitter, MSE and elsewhere (for those who prefer to watch than read, see my ITV This Morning explanation)
And before I’m accused of defending the Govt, I write below based on fact and financial analysis, not politics. I don’t play sides. If I think the Govt is wrong, I’ll tell them, as in my open letter to the PM over disgraceful student loan hike and the fact I’m seeking to legally challenge the Govt on student loans.
Q. I’m at university now, the scrapping of student loans is a nightmare, what do I do?
Nothing. Student grants have only been scrapped for those starting university in 2016 – if you are at university and get a grant you will continue to do so.
Q. How did the Government sneak this in without telling anyone about it?
This has actually been reasonably well flagged, it was in the Summer Budget, which was over a year before the changes came into effect. Here’s our write up from the time and explanation of what’s happening – student grants to be scrapped for new starters.
For me though the big problem is the Government’s ability to change student finance without recourse to a parliamentary vote. It is about time the terms were enshrined in statute and need Parliament to change them.
Q. How will students be able to afford to go to university without student grants?
Students going to university in recent years have either received a loan, or if they come from lower income households, up to £3,387 of their loan has been replaced by a non-repayable grant. See my 22 Student Loan Mythbusters for a full explanation.
New starters from September 2016 who would’ve been eligible for the grant element will see it replaced by a bigger student loan, so the amount of cash coming in is actually increased. The only difference is all of it is now (nominally) repayable, rather than just some of it.
Here’s the maximum loan amounts – it’s partially means-tested…
- Living at home: £6,904/year (currently £4,565/year)
- Living away from home, outside London: £8,200/year (currently £5,740/year)
- Living away from home in London: £10,702/year (currently £8,009/year)
Q. Isn’t this a huge hit for poorer students who will start from 2016 – is uni now unaffordable?
No, for most of them, if the system remains as it is now, it makes no practical difference. The replacement of a grant with a loan will ONLY cost more for those who leave university and have long-term high earnings.
Q. Sorry, are you honestly saying this has no real financial impact on poor students and only hits higher earners?
Yes, I know it’s counter-intuitive, so let me explain in more detail. If you don’t know how student finance works, it’d be best if you read my Student Loan Mythbusters guide first to get a handle on this…
Currently the student grant replaces up to £3,387 of student loan for students with family income of below £42,620.
Yet after leaving university, students repay 9% of everything they earn over £21,000 for a maximum of thirty years. Those who’d currently qualify for a full grant would only actually pay more under the new system, if they repay their entire tuition fee, remaining maintenance loan after the grant, and interest within the thirty years before the debt wipes.
A number crunch via our student finance calculator shows, as a rough rule of thumb, for a student living away from home, taking the full tuition fees, this change only affects those on graduate starting salaries very substantially above £30,000. And this is also after above inflation pay rises. That is at the very high end of graduate earnings.
If you earn less then as you won’t actually repay more due to the switch from grant to loan, it’s a meaningless change.
Q. So you think it has no impact whatsoever?
There real risk with ending grants, as it stands now, is the fact larger loans can be a psychological deterrent, especially to those from non-university backgrounds.
That needs addressing – one way would be to stop calling student loans a loan – when they’re in fact far nearer to a tax. Other countries call them a graduate contribution and we should adopt that here, see my Time to stop calling student loans a loan blog for more.
But in a way the problem is all the arguments and spittle over this just reinforce the fear of those who are scared to go to university, and are probably just as damaging as the grant issue itself.
Yet its worth noticing I’ve caveated what I’ve said above with “as it stands now” or “if the system remains unchanged” and for me that’s the worry here, as I’ll explain below.
Q. Will loans also increase for current students?
Yes. But not by as much. It’s possible to argue while many current students will feel relieved that they keep their loans, they’re actually relatively worse off. One of the big problems many face is the loan isn’t big enough, and so swapping a grant for a bigger loan that many won’t repay could be argued would be better.
Q. So you think the whole protest is mis-targeted?
My frustration is by far the bigger issue, and one that is much more regressive, is the retrospective hike in student loan repayments. Unlike the scrapping of loans which in practice will only cost high-earning graduates more, that will hit many low- and middle-earning graduates and actually helps higher-earning graduates.
Of course it’s much simpler to protest over the scrapping of grants, as on the surface it sounds like a real hit to the poor. But talking about the freezing of a threshold – which is what the repayment issue is – sounds boring. Yet the threshold freezing is the one that will actually cost students £1,000s more than they thought they were paying when they signed up.
And more so, the one real danger of getting rid of grants and replacing them by loan is that the government can negatively change the loan terms – and we’ve proof it is willing to do this, even for those who’ve started university. And that’s the key problem – the changing of grants, if nothing else changes isn’t such a biggie – but it could be if other terms are retrospectively changed in the future.
That’s why I think a stronger campaign point is that terms should be fixed by statute.