Students are expected to be even more affected by the ongoing cost of living crisis than previously, according to new data.
Research from the highly-respected Institute for Financial Studies (IFS) found the university under-graduates will have £1,000 less from their student loans compared to two years ago.
This is around £250 higher than the IFS previously estimated in June.
According to the think-tank, it comes down to the disparity between the maintenance loans students are entitled to and the current inflation rates.
Inflation reached 11.1% in October, a level not seen in more than 40 years.
It was 4.2% in October 2021, and 0.7% in 2020 due to the impact Covid lockdowns had on the economy.
The IFS explained: “If inflation forecasts had been accurate, maintenance loans would have kept rising over the last two years.
“Unless policy changes, these cuts will stay in place. Past forecast errors aren’t considered when determining the adjustment in entitlements for the following year.”
There’s now a “significant” gap between the loan entitlements and the amount these individuals could earn with the minimum wage if they worked the same hours – they could make up to £1,200 more, in fact.
This gap is expected to increase to more than £2,000 for the next academic year too, which is the biggest gap since the national minimum wage came in back in 1999.
The IFS speculates such money issues could put people off going to university in the first place.
And half of students have already reported financial difficulties in a new ONS survey, with 35% saying these pressure were minor and 15% saying they were major.
More than nine in 10 claimed to be “either somewhat or very worried about the rising cost of living”, with 91% reporting that it was already more expensive than last year.
One in four had resorted to taking on new debt to cope, 66% of whom said they did so because their student loan was not enough to live on.
Seventy-seven per cent also claimed they were worried that the rising costs would have a negative impact on their performance in their studies.
To top it off, around 45% of all students saying their mental health had declined since the start of the autumn term 2022.
“These real-terms cuts in maintenance loans will make life much harder for students on already tight budgets, many of whom fall through the cracks in the government’s support packages,” the IFS explaimed.
The think-tank urged the government to ensure maintenance loans are “uprated consistently”.
At the moment, each academic year students are allowed to take out a maintenance loan on top of tuition fee loans. The amount depends on their parents’ income, where they are studying and whether they are living with their parents.
Students from the poorest families studying outside of London, not living with parents, can receive a maximum of £9,706.
IFS believes this should be £11,190 right now, in line with inflation, but instead, they are £125 short every month due to these forecast mistakes.
Once they graduate, these individuals’ loans are added to their overall student loan balances and start to accumulate interest.
They have to make loan repayments on any earnings above the current threshold of £27,295.
They only stop paying when they have paid off their loans or three decades have passed since they were liable for repayments.
Because inflation levels have been higher than the Office for Budget Responsibility was expecting, the value of the maintenance has declined – IFS believes it’s at the lowest level for seven years.
And, because there’s no sign the government will alter its forecasting, the researcheers expect there to be a “small further cut in the real-value of entitlements” next year too.
As IFS director Paul Johnson tweeted in response to the findings: “Now this is just ridiculous.”
Meanwhile, it’s still not clear if students living in halls will be eligible for the £400 most households received towards their energy bills this winter, even as the UK slides into recession.