The change from grants to maintenance loans in England and Wales was intended to improve student perceptions of the value of higher education, have a positive effect on long-term public finances and, most importantly, encourage wider participation in higher education. Instead, the maintenance loans system is likely to create long-term intragenerational inequality.
The current system of means-tested maintenance loans places students from lower-income backgrounds in more debt than their higher-income background peers. For example, a student from a household with a total income of £25,000 taking out the maximum support they can for both tuition fees and maintenance will be in approximately £65,000 of debt after a three-year undergraduate degree at a London university, according to the SFE calculator – a government service that provides guidance on student finance.
In contrast, the calculator places a student on the same course but from a higher income household of £75,000 in approximately £47,200 of debt if they are also taking out the maximum amount they can. In practice, however, students from higher-income households are more likely to receive financial support from their parents, such that they do not require their maximum loan amount in full.
This system then becomes a problem because of how the student debt is repaid. The current terms are 9% of your income over the threshold set by the government, £27,295 per year as of 2023, while interest accrues at the retail price index plus 3%.
To demonstrate the inequality this system creates, a generalised comparison can be made between two students over five years at the same £30,000 a year job with interest on their debt at 4.5%.
One of these students is the low-income household student from the prior calculation. The other student, from a different higher-income household than before, took out only a full tuition fee loan over three years on the same course and so has £27,750 of student debt. Assuming all remains the same, at the end of the 5-year timeframe and after paying back £1,217 each, the poorer student will be in £80,758 of student debt, whereas the well-off student will be in £34,338 of student debt.
This larger student debt would then put the student from a lower-income background into more debt for longer than their higher-income background peers. Subsequently, the student from a lower-income background has less income after deductions over a longer period relative to their peers, and so pivotal quality of life improvements, such as access to housing and the ability to start a family, will take longer for them to achieve as well.
This effect will be exacerbated by recent changes to the repayment arrangements from 30 to 40 years. Thus, in the long run, if graduates from lower-income backgrounds are burdened by student debt repayments for longer than their higher-income background peers, the current system of maintenance loans is likely to create persistent intragenerational inequality. Only over time will evidence of the extent of this inequality be realised.
Therefore, the analysis suggests that there is a strong case for the Government to rethink maintenance loans in England and Wales if it is committed to promoting a society of equal opportunity for all young people, no matter their background, to have a fair chance in life to unleash their full potential. To do this, a thorough assessment must be made of the relationship between the current maintenance loan system and intragenerational inequality.
In recent years a discussion has surfaced over the impacts of a policy limited to a part-loan, part-grant system; the Augur report suggested changes including this type of policy could reduce the amount of debt for a graduate by 25%, however, others reported it as a ‘scam’. More radical thinking is required than the policies of the said report if the desired outcome of fairer opportunities and improved intragenerational equality after university is to be reached.
Cameron Philp is currently undertaking work experience at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Victoria Heath]
