Prime Minister’s announcement on changes to student funding

The student finance system has gone through a prolonged period of change and reform since the Labour Government introduced upfront university tuition fees of £1,000 per year in 1998.

Since 1998 tuition fees have progressively risen. In 2006, under the Labour Government, the Higher Education Act 2004 trebled fees to £3,000 per year and introduced deferred variable fees and tuition fee loans which are repaid after graduation. 

From 2006 fees rose gradually by inflation until 2012 when, under the Coalition Government, tuition fees were raised to £9,000 per year following an independent review of the student finance system by Lord Browne. The student finance reforms at this time also included raising the repayment threshold to £21,000 and introducing a variable tiered rate of interest on student loans.

Most changes in the student finance system have been made in response to a particular set of funding pressures. The cumulative effect is that England now has the highest ‘public’ tuition fees in the industrialised world and a complicated system of student support.

Since 2012 there have been further changes which have moved student support increasingly away from non-repayable grants and towards loans. Maintenance grants and NHS bursaries have been abolished and replaced by increased loans, the student loan repayment threshold has been frozen and interest rates on student loans have increased.

In addition to these reforms a process called the Teaching and Excellence Framework has allowed higher education institutions with high quality teaching to raise their fees by an inflationary amount to £9,250 in 2017/18 – this is the first fee rise since 2012.

The combined effect of these changes has been to increase student debt – the Institute for Fiscal Studies has calculated that students from the poorest backgrounds will accrue debts of £57,000 from a three-year degree.

In the 2017 General Election the Labour Party manifesto included a commitment to abolish tuition fees and to restore maintenance grants. This proposal proved popular among young voters.

On 1 October 2017 the Prime Minister announced that there would be changes to the student finance system:

• the fee cap would be frozen at £9,250,
• the repayment threshold would rise to £25,000
• and a there would be a review of the student finance system.

The proposed freeze on fees will reduce income for universities, compared to what they expected to receive. It will also mean that the Government will need to lend, and students to borrow, slightly less.

Increasing the threshold to £25,000 reduces future repayments and hence increases the economic costs, or subsidy element of the loans. The proportion of borrowers with some debt written off could increase from around 70% to around 80%.The annual cost could be in the order of £2 to £3 billion. 

Middle earning graduates are likely to gain the most from this change.