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Poorest students £1,000 worse off this year

Talented young graduates from Imperial College London celebrate their education success with friends and families after their graduation ceremony at the Royal Albert Hall, on 19th October 2022, in London, England. (Photo by Richard Baker / In Pictures via Getty Images)
Student maintenance loans have not kept pace with inflation: Photo: Richard Baker/In Pictures/Getty

Students in England will be hit even harder by the cost-of-living crisis than previously thought, according to The Institute for Fiscal Studies (IFS).

Analysis based on the most recent inflation forecasts by the Office for Budget Responsibility (OBR) shows that the poorest students will be more than £1000 worse off this year than in the academic year of 2020-2021.

The analysis found that the government's maintenance loan has not kept pace with rising inflation.

This has caused a cut in loan purchasing power of around £250 per year for students in England compared to previous predictions.

Read more: Interest rates: Top Bank of England official warns further rises needed

The maintenance support has been adjusted based on forecasted inflation rather than actual inflation, which has risen higher.

There is currently no government fiscal mechanism to adjust the amount of maintenance support based on actual inflation as opposed to forecasted inflation.

Kate Ogden, a senior research economist at the IFS, said: "While others are benefiting from extra government support, students have been left in the cold. Merely because of errors in inflation forecasts, the poorest students will be more than £1000 worse off this academic year than in 2020/21. This could lead to significant hardship for many this winter."

Student maintenance loans are adjusted with forecast RPIX inflation. RPIX is a measure of inflation in the UK, equivalent to the all-items Retail Price Index and excluding mortgage interest payments.

If forecast RPIX inflation is less than actual inflation, the real value of maintenance loan entitlements will instead fall.

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Ben Waltmann, a senior research economist at the IFS, said: ‘Using forecast inflation to uprate maintenance loan entitlements makes sense, but having no mechanism to correct errors makes no sense at all. The government should ensure maintenance loans are uprated consistently rather than allowing a large and essentially random reduction in the value of loans to become baked in.’

For university students domiciled in England, government support for living costs is given out in the form of maintenance loans, and students can take out these maintenance loans in addition to loans for tuition fees.

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The amount to which a student can borrow is measured against their parents’ income and in this academic year, students from the poorest families studying outside London and not living with their parents are entitled to a maximum maintenance loan of £9,706.

After a student graduates, they must then make loan repayments from any earnings above a threshold, which is currently £27,295.

Loan repayments stop either when they have paid off their loans, or once 30 years have elapsed.

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