To ask the Secretary of State for Education, whether she has made an assessment of the potential merits of providing (a) financial grants, (b) interest free and (c) lower interest loans to students in the context of rises in the cost of living.
5 July 2023
The government recognises the cost of living pressures that are impacting students. The department has made £276 million of student premium and mental health funding available for the 2023/24 academic year to support students who need additional help to succeed, including disadvantaged students.
We have continued to increase maximum loans and grants for living and other costs each year, with a 2.3% increase for the 2022/23 academic year, and a further 2.8% increase for 2023/24. In addition, students eligible for benefits, such as those who are responsible for a child, qualify for higher rates of loans to help them with their living costs at university.
Students who have been awarded a loan for living costs for the 2022/23 academic year that is lower than the maximum, and whose household income for the 2022/23 tax year has dropped by at least 15% compared to the income provided for their original assessment, have been able to apply for their entitlement to be reassessed.
The government has no plans to reintroduce maintenance grants, as it believes that income-contingent student loans are a fair and sensible way of financing higher education. In 2022, we had record numbers of 18-year-olds going to university, including those from disadvantaged backgrounds. An English 18-year-old from a disadvantaged background today is 86% more likely to go to university than in 2010.
The student funding system must provide value for money for all at a time of rising costs. It is important that a sustainable student finance system is in place, that is fair to both students and taxpayers. Interest is an important part of this. If interest payments were removed altogether, it would increase the burden to taxpayers, not all of whom will attend university. The government does not plan to further reduce interest rates on student loans. In 2022/23, student loan interest reduced public sector net debt by around £4.8 billion according to published data from the Spring 2023 Office for Budget Responsibility Economic Outlook.
Student loans are different to commercial personal loans. Monthly student loan repayments are calculated by income rather than by interest rates or the amount borrowed. No borrower will be repaying more per month as a result of changes to interest rates. Borrowers are protected. If income is below the relevant repayment threshold, or a borrower is not earning, repayments stop. Any outstanding loan balance, including interest accrued, is written off after the loan term ends, or in case of death or disability, at no detriment to the borrower. Student loans are subsidised by the taxpayer, and the government does not make a profit from the loan scheme.
To further protect borrowers, where the government considers that the student loan interest rate is too high in comparison to the prevailing market rate, it will reduce the maximum Plan 2, Plan 3 and Plan 5 interest rate by applying a cap.
New students who start courses on or after 1 August 2023 will receive their loans on new Plan 5 terms. Students with Plan 5 loans will benefit from a reduction in the interest rate to Retail Price Index only. This change ensures that borrowers on the new Plan 5 terms will not repay more than they originally borrowed over the lifetime of their loans, when adjusted for inflation.
Decisions on student finance have had to be taken alongside other spending priorities to ensure the system remains financially sustainable and the costs of higher education are shared fairly between students and taxpayers, not all of whom have benefited from going to university.