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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 2020-21 total for teaching is 76% below the 2011-12 figure in real terms.

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

Spending on student maintenance grants was just over £1.6 billion in 2015/16. Grants were abolished for new students from 2016/17 and it fell to £0.6 billion in 2017/18 and is expected to be near zero from 2018/19.

The cash value of loans has increased from below £6 billion in 2011-12 to £15 billion in 2017-18 and is forecast to reach £22 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 54% of the face value of these loans. 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. The total face value of loans do count towards the national debt. 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.

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 sources increased in real terms in each year from 2011-12 to 2019-20. Student numbers have also increased over this time.

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.

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 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:

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