21/07/2015 04:51 BST | Updated 21/07/2015 04:59 BST

University Grant Axing Saddles Poorest Students With £10,000 More Debt - But Savings Will Barely Register

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LONDON, ENGLAND - NOVEMBER 19: Protestors gather in Parliament Square during a march against student university fees on November 19, 2014 in London, England. A coalition of student groups have organised a day of nationwide protests in support of free education and to campaign against cuts. (Photo by Rob Stothard/Getty Images)

Plans to replace university maintenance grants with loans will saddle the poorest 40% of students in England with £10,000 more debt than those graduating under the current system, and will do little to improve government finances in the long run, a think-tank has warned.

George Osborne's scheme to cut the means-tested benefit for students from low-income households will spell an increase in debts of up to £53,000, up from £40,500, for four in 10 of those in higher education, the Institute for Fiscal Studies said.

The Chancellor announced proposals in his Summer Budget earlier in July to remove access to grants for poorer students, which were worth up to £3,387 annually, instead replacing them with bigger loans for those entering university in 2016. Those who qualified for the grant can now borrow as much as £8,200 - the highest amount ever offered.

Only a quarter of additional loans will be repaid, resulting in a long-term saving of around £270m for the government - a 3% decline in the cost of funding higher education, the IFS suggests.

But the think tank warned in its report that while borrowing levels are expected fall in the short term by some £2bn a year, this is "at the expense" of higher borrowing 30 years in the future.

george osborne budget

George Osborne leaves Downing Street to deliver his Summer budget

Chukka Umunna, Labour's shadow business secretary, used Tuesday's IFS analysis to attack the Conservatives over their decision to cut university grants, saying the party was "making life harder for people who want to get on".

“After trebling student fees in the last Parliament, now ministers are burdening the poorest students with more debt while cutting funding for universities," he said.

“As the IFS highlights, the replacement of maintenance grants with loans will raise debts for the poorest students and won’t improve government finances in the long term.

"At the same time, with the freezing of repayment thresholds, graduates will start paying back at a far lower level of income than previously, and will end up paying £3,800 more on average.

“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.”

free education protest

Demonstrators protesting at changes to the tuition fees cap

Economist and co-author of the IFS briefing note Jack Britton commented, saying: "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."

A spokesman for the Department for Business, Innovation and Skills told Times Higher Education that the government was “committed to widening access in higher education”, and that 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,” he added.

“Lifting the cap on student numbers also means that more people will be able to benefit from higher education than ever before.”