'Tax on aspiration' for poorest university students

University students graduating as George Osborne's budget plans will raise the cost of higher education

(Chris Ison/PA)

It was widely reported that George Osborne's summer Budget would be bad for young people, and new research appears to back that up – at least for anyone with hopes of attending university from next year.

But not all students are equal. The Institute for Fiscal Studies says the Chancellor's plans to change maintenance grants into loans will hit the poorest 40% of students going to English universities the hardest – leaving them with debts to the state of up to £53,000 from a three-year course.

The loans will give students from low-income households more spending money at university, but will mean they leave with debts averaging £12,500 more than those from wealthier homes.

Two-thirds of the graduates affected won't earn enough over their lifetimes to repay in full, meaning all but a quarter of the additional loans will be written off. Because of this, Osborne's changes will reduce government borrowing by £2 billion in the short term, but actual savings will be a lot less at around £270 million from each year's intake of students in the longer term.

Graduates will pay an average of around £3,800 more over the course of their careers because of Osborne's freeze on the earnings level at which they have to start repaying their debt, which it is thought will stay at £21,000 for the next five years.

The freeze, which will save the Government around £1.4 billion, will be felt most by those graduates on median average salaries for people with degrees – they'll be paying £6,000 more in total. The highest-income graduates will not be affected by the change in the threshold because they would be expected to pay off their loans in full anyway.

IFS research economist Jack Britton thinks the freeze could be the most damaging aspect: "While the small increase in support for living costs available to students from lower-income families will undoubtedly be welcomed by many, the switch from maintenance grants to maintenance loans will result in substantially higher debt for the poorest students.

"For most, though, it is the freezing of the repayment threshold which will do more to raise loan repayments, and hence increase the cost of higher education.

"The 2012 reforms appear not to have had a negative effect on higher education participation amongst full-time students from poorer backgrounds. This likely reflected the fact that the system was designed to protect both that group and those with low expected lifetime earnings. Only time will tell whether these new changes will be similarly benign in their effect."

University and College Union general secretary Sally Hunt said: "The Government has created a situation where the poorest students that aspire to university will have to take on much larger debts and be hit with bigger annual repayments once they graduate. It is little more than a tax on aspiration and exposes this Government as certainly not being on the side of the strivers."

A spokesman for the Department of Business, Innovation and Skills said: "The Government is committed to widening access in higher education and anyone with the ability to succeed should have the opportunity to participate, regardless of their background or ability to pay.

"The changes announced in the Budget provide students with more money in their pockets to help with living costs while studying. Lifting the cap on student numbers also means that more people will be able to benefit from higher education than ever before."

Shadow business secretary Chuka Umunna said: "After trebling student fees in the last parliament, now ministers are burdening the poorest students with more debt while cutting funding for universities.

"Instead of investing in future generations, the Government is making life harder for people who want to get on, massively increasing the cost of higher education, particularly for the poorest students."