‘Inflation forecast errors’ mean student loan support is worth 10% less this year

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The cost of living crisis and prolonged period of high inflation mean that university students have actually seen a real reduction in maintenance support requirements since 2020, according to a research institute.

About half of student income comes from maintenance loans, the amount of which varies depending on where you live during the school term, as well as your household income, i.e. what the parents earn.

Currently, the maximum maintenance loan entitlement is just over £8,000, with this figure increasing every year in line with the retail price index forecast to measure inflation (excluding mortgage interest).

According to Kate Ogden, research economist at the Institute for Fiscal Studies (IFS), this should mean that as prices rise, loan entitlements also rise, so the real value of student support is maintained.

Ogden revealed that between 2017 and 2020, loan entitlements increased by around 3% each year and that the CPI (the most widely used measure of inflation according to the consumer price index) was in fact lower than the IPR “so that maintenance support was rising faster than consumer prices”.

Last year maintenance loans increased by 3.1% and this year by 2.1%.

“If the government sticks to its usual policy, maintenance support over the next academic year will increase by 1.8 percent.”

Rights not tracked by consumer price inflation

Ogden added that the increase in loan entitlements has not kept pace with inflation in recent years, with the CPI standing at 6% last year while it is expected to be slightly above 10% this year.

“So those support hikes are actually reductions in real terms of 3% last year, 7% this year, and maybe another 2% next year,” Ogden said, based on the forecast. Bank of England inflation.

“Higher than expected inflation means that maintenance support has been significantly reduced in real terms since 2020.

“These past errors in inflation forecasts are never corrected. This means support is worth 10% less this year than two years ago,” she revealed.

In monetary terms, Ogden said this equates to a reduction of around £960 a year for someone living away from home outside London.

Analysis of the minimum wage and comparison of the parental income freeze

Meanwhile, the IFS also looked at the average earnings a typical student (studying 37 hours over 30 weeks) would earn at minimum wage if they were no longer studying.

Ogden revealed support and minimum wage were ‘tracked’ until 2020 but since then a ‘gap’ has emerged where students dropping out of classes could earn £1,100 more working at minimum wage than what they would get from their maintenance loan.

In addition, the IFS has looked at another “less obvious” way to make maintenance loans less generous, and this is due to the freezing of the lower parental income threshold.

In order to get the maximum support of £8,000, the parental income threshold is £25,000 and has been frozen since 2008.

Ogden explained that if the threshold had increased with average incomes, it would stand at £35,000 today.

“That means about half as many students qualify for the maximum aid now as they would if that threshold hadn’t been frozen in the past 14 years,” she said.

Where can students get additional support?

Ogden said the system assumes students will receive financial assistance from parents, but this cohort is also facing the effects of the cost of living crisis.

Most are not eligible for benefits unless they are disabled or have dependants, but they will be eligible for the £400 energy discount, but that is per household, not per student.

She said students are likely to be looking to find jobs or increase their study hours, but many generally head into the retail and hospitality sectors, but unemployment is expected to rise in the future. over the next few years “which could make it harder to find those overtime hours,” Ogden warned.

Alternatively, universities may offer their own hardship funds so that students are encouraged to find details for their individual university.

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