May’s reforms of student finance system could cost 40% more, says IFS

3 Oct 17

Prime minister Theresa May’s reforms to the student finance system will save graduates significant amounts of money but increase costs to the taxpayer by around 40%, Institute for Fiscal Studies analysis has revealed.

May announced at the start of this week’s Conservative Party conference that graduates would not have to start repaying their student loans until they started earning £25,000 a year – up from the current level of £21,000 a year.

The IFS said this would save middle-earning graduates up to £15,700 over their lifetimes, but it adds around £2.3bn a year – or 40% – to the public cost of providing higher education.

The think-tank also estimated that the changes will mean around 83% of graduates will not have paid back their student loans by the time the debt is written off 30 years after graduation, up from 77%.

The freeze on tuition fees, also announced by May, only has a very small impact in the short-run and will only reduce repayments for the very highest-earning graduates.

“Freezing tuition fees in cash-terms reduces university funding and saves the government £0.3bn a year in the long run,” the IFS said.

“The impact on universities is small is the short-run but will grow the longer the freeze is kept in place.

“This creates uncertainty about future university income and makes it difficult for universities to make long-term plans.”

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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