Chancellor George Osborne has today said he will scrap university maintenance grants for new English students and replace them with an enlarged maintenance loan, though according to Martin Lewis, the impact is likely to be more psychological than practical for many.
What is happening to grants?
Currently, full-time English students can get two kinds of help to cover living costs while at university (for a full explanation see the 20 student loan mythbusters guide):
- Maintenance loans – which alongside tuition fees are totalled to become your student loan. You then repay 9% of everything above £21,000.
- Maintenance grants – available to those from families with lower incomes, which you get instead of some of the maintenance loan. These do not have to be repaid.
Under Osborne's changes, from the 2016/17 academic year, maintenance grants will be scrapped, so that all of the money for maintenance will now come in the form of a student loan.
Existing students at the time will not be affected by this change, ie, those who start from the 2015/16 academic year or earlier will still continue to get their grants even after 2016.
The size of maintenance loans will be increased
Crucially though, the maximum borrowing will also be substantially increased from 2016 for new students (not for existing students).
The amount students get will continue to depends on their family's household income, with 65% of the loan being guaranteed and 35% income-assessed, as is the case with the current maintenance loans system.
This means everyone eligible will be entitled to a loan, regardless of how much their parents' earn, although only those with a household income of £25,000 or under will be able to get the maximum amount of:
- 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)
The Government is still finalising exactly how the loans will be calculated, and says more information will be provided in "due course".
Martin Lewis' analysis of what this means in practice
Martin Lewis, founder of MoneySavingExpert.com, and former head of the independent taskforce on student finance information, explains:
- On the scrapping of grants: "Currently the student grant replaces up to £3,387 of student loan for students with family income of below £41,000. In practical terms, getting rid of the student grant will only affect high earning graduates.
"This is because 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 is only for those on graduate starting salaries substantially above £30,000 who then get above inflation pay rises after that too. That is at the very high end of graduate earnings.
"The real risk with ending grants is the fact larger loans can be a psychological deterrent, especially to those from none 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 Martin's Time to stop calling student loans a loan article for more on this.
- On the increase in maintenance loans: "This is a long overdue step. While many complain students loans are too big, the real problem most students have faced is that they're not big enough – some living loans have barely covered some hall rents, never mind other costs.
"So the planned substantial increase in maintenance loans is very welcome, however it won't help current students, many of whom are struggling."
Freezing the repayment threshold
Separately, the government has announced today that it will also consult this summer on freezing the loan repayment threshold for five years, which would mean more people have to start repaying their loan. If the threshold rises in line with wage rises then they'd be spared that.
Martin has previously pledged to organise a protest if the Government freezes the student loan repayment threshold – and thus retrospectively increasing the cost of student loans.
What about existing students?
Nothing changes for existing students. See our Student Loans Mythbusting guide for the full information.