Higher education funding in England

Funding

There are two main elements of public spending on higher education –direct funding through the funding councils for teaching and research and student loans for maintenance and fees.

Support through the funding council for teaching fell even before the 2012 reforms and was cut particularly quickly from 2012 to 2015. The 2021-22 total for teaching is 78% below the 2010-11 figure in real terms.

Research funding has been broadly maintained in real terms since 2010.

Spending on maintenance grants was just over £1.6 billion in 2015/16. Grants were abolished for new students from 2016/17 and it fell to £0.2 billion in 2018/19 and is expected to be near zero from 2019/20.

The cash value of all student loans has increased from below £6 billion in 2011-12 to more than £17 billion in 2019‑20 and is forecast to be more than £21 billion in 2024-25. This increase was driven primarily by higher fees from 2012, but also replacing grants with loans, higher student numbers and expansion of loans to part-time and postgraduate students.

The ultimate cost to the public sector is currently thought to be around 53% of the face value of loans to full-time undergraduates. This subsidy element of loans was not included in the Government’s main measure of public spending on services for some years and hence did not count towards the fiscal deficit. Recently an estimate of this subsidy has been included in overall UK public borrowing again. There is considerable uncertainty about the final size of the subsidy element of loans and the Government’s estimate of it increased sharply after the 2012 reforms were first announced and increased in the latest forecasts in response to lower earnings forecasts following the coronavirus pandemic.

The total cost to the public sector has varied little in real terms over these years if the subsidy element of loans is included. This is despite the increase in student numbers. A recent increase reflects new estimates of the subsidy element of loans which has only been made for 2019-20 and 2020-21. Cuts in support for teaching over the first half of this decade were balanced out by increases in loans and grants. More recently the main change has been the shift from maintenance grants to loans.

The large increase in fee income (from home and EU students) since 2012 has meant that the total funding for institutions through regulated fees and funding council allocations increased in real terms in each year from 2011-12 to 2019-20. Student numbers have also increased over this time.

Policy related to funding

The Government raised the cap on tuition fees for new student to £9,000 in 2012/13 and cut most ongoing direct public funding for teaching in England. This shifted the balance of higher education funding further away from the state and further towards the individual who benefits.

In his summer Budget 2015 Chancellor George Osborne announced the biggest changes to student finance since 2012:

• Maintenance grants will end for new students from 2016/17 and be replaced by loans.
• A consultation on freezing the student loan repayment threshold for five years
• Allowing universities offering ‘high teaching quality’ to increase fees in line with inflation from 2017
• A review of the discount rate applied to the accounting treatment of loans.

After consultation the Government decided to freeze the repayment threshold for all post‑2012 borrowers. The discount rate used for the public accounting of loans was reduced from 2.2% to 0.7%. These changes are expected to result in savings to current spending when grants are ended and a substantial cut in the subsidy element of loans.

On 1 October 2017 Prime Minister Theresa May announced a number of changes to these policies: The fee cap would be frozen in 2018‑19, the repayment threshold would rise to £25,000 and a there would be a review of the student finance system. The Department for Education subsequently confirmed that the freeze on the repayment threshold would also be removed.

On 19 February 2018, Prime Minister Theresa May announced that there would be a “wide-ranging review into post-18 education” led by Philip Augar. The review is to look at how future students will contribute to the cost of their studies, including “the level, terms and duration of their contribution.” More detail on the review can be found at: Review of Post-18 Education and Funding.

The Review report was published on 30 May 2019, Independent panel report to the Review of Post-18 Education and Funding. The report was a detailed analysis of the post-18 education sector and the funding issues faced by stakeholders. The Library’s briefing paper The Post-18 Education Review (the Augar Review) recommendations gives more detail. On 21 January 2021 the Government published its ‘interim conclusions’ to its review of post-18 education and funding. It announced that the maximum tuition fee cap would be frozen again in 2021/22 at £9,250 and that decisions on further changes to student finance would be put off until the next spending review later in the year. At the autumn 2021 spending review the Government said its response to the Augar report would be published “…in the coming weeks” alongside details of the higher education settlement up to 2024-25

Further reading

This paper looks at recent levels of funding for higher education in England, particularly the period from 2015 onwards. It builds on and replaces Changes to higher education funding and student support in England from 2012/13 and HE in England from 2012: Funding and finance which looked in detail at the impact of the 2012 reforms and subsequent announcements on graduates, universities and public spending.

The Student Finance Explained series of articles looks at financial flows under the current system and the impact of different hypothetical changes to student loan repayment terms, tuition fee levels and grants.

The briefing paper Higher education student numbers looks at how student numbers have changed over time, gives some insight into the impact of the 2012 higher education reforms on different types of students and courses and summarises the last evidence on applications. Readers may also be interested in the following briefing papers:

• Higher education finance statistics
• Student loan statistics
• Tuition fee statistics
• The value of student maintenance support
• Support for postgraduate students in England
• Higher education tuition fees in England

Impact of the coronavirus pandemic

The Government has announced a number of different support measures to help universities deal with the expected drop in income following the coronavirus pandemic. These are detailed in the briefing paper Coronavirus: Financial impact on higher education along with a discussion of the possible size and effect of the drop in income.