Yahoo Finance UK university students face substantial cuts to value of maintenance loans
The government is tightening the financial screws on university students who face a substantial cut to the value of their maintenance loans, according to a new report by the Institute of Fiscal Studies.
All UK university students will see a decrease in the value of their loans as the parental earnings threshold is frozen in cash terms and the increase in the loans falls short of inflation.
The threshold below which students are entitled to full maintenance loans – funding for everyday expenses paid directly into their bank accounts in instalments – has remained at £25,000 in cash terms since 2008.
Had it risen in line with average earnings, it would now be around £34,000.
Read more: UK inflation hits 30-year high as cost of living squeeze looms
Ben Waltmann, senior research economist at the Institute for Fiscal Studies said: "The government seems determined to use high inflation as a cover for reducing the taxpayer cost of student loans.
"Large real-terms cuts in maintenance loans could cause genuine hardship for students on tight budgets."
Watch: How university students are facing big cuts to maintenance loans
Many universities offer hardship funds to students who are on low incomes, students with disabilities and those who are eligible for certain benefits.
However, it's not just students on tight budgets who are being affected, graduates will have to give up more of their disposable income as the student loan repayment threshold is also frozen in cash terms.
Waltmann added: "A freeze in the repayment threshold mostly hits middle-earning graduates, whose budgets are already being squeezed by the rise in the cost of living, the freeze in the personal allowance and the hike in National Insurance.
"The extension of the freeze in maximum fees will add further pressure on universities, while only benefiting the highest-earning graduates."
A graduate earning £30,000 will need to pay £113 more towards their student loan in the next tax year than the government had previously said.
Separately, criticism is being levied at the government by some for its decision to freeze tuition fees – a move which will hit universities and mainly benefit taxpayers.
At the moment, universities can charge UK undergraduates up to £9,250, which hasn't been changed since 2012 when they were able to charge up to £9,000.
Read more: Bank of England raises interest rates to 0.25% amid soaring inflation
A tuition fee loan is paid directly to the university or college on the student's behalf.
The continuing freeze means that there will be large cuts in real terms for the academic year, given the high level of inflation.
If maximum fees were to be increased with projected RPIX inflation, from the 2020–21 level, they would need to be nearly £10,500 in 2022–23.
On the other hand, the taxpayer will benefit to the tune of £1 billion per cohort from the freeze in maximum fees between 2020-21 and 2022-23 alone.
On the whole, the government is saving £2.3 billion on student loans under the cover of high inflation, according to the calculations by the Institute of Fiscal Studies.
