Student finance overhaul will punish poorer graduates while top-earners pay less, ministers warned

A shake-up of university finance will punish poorer students while top-earning graduates pay less, ministers are being warned – as a call to bring back maintenance grants is rejected.

The long-delayed response to a review ordered by Theresa May also throws out a recommendation to slash annual tuition fees from £9,250 to £7,500, made because of fears that high debt deters disadvantaged teenagers.

Instead, fees will be frozen, while graduates will feel the pain of a cut in the threshold to start repayments from £27,295 a year to £25,000, to “make the system fairer for the taxpayer”, ministers say.

As expected, in a further cost-cutting move, students will be blocked from taking out loans – and, effectively for all but the richest, from going to university – if they fail to get strong GCSE or A-level grades.

The government will seek to sweeten the pill by scrapping interest on new loans, while a new “lifelong loan entitlement” will allow people to “retrain flexibly at any time in their lives”.

But Labour described the package – three years after the Augar report was published – as “another stealth tax for new graduates”, which would be “slamming the door on opportunity”.

The Education Policy Institute think tank warned it would be “regressive” and threatened to hit “students from disadvantaged backgrounds”.

“These policies are likely to result in lower- to middle-earning graduates paying more than they currently do, while higher earning graduates are likely to pay less,” said David Robinson, its director of post-16 and skills.

The chair of the parliamentary All-Party Group for Students, Paul Blomfield, attacked the dropping of the “important proposal for the reintroduction of maintenance grants for the poorest students”.

He also warned: “Freezing tuition fees, without additional teaching grant, reduces resources available to universities and means future students will be paying more for less.”

And Larissa Kennedy, president of the National Union of Students, said: “This government parrots the language of levelling up, but these proposals are classist, ableist and racist: they target those from marginalised communities, and seek to gatekeep education.”

The package, which will go out to consultation, will:

* Freeze maximum fees at £9,250 a year until 2025, meaning they will not have risen for seven years – while rejecting a cut to £7,500.

* Cut the repayment threshold to £25,000 for students starting courses from September 2023 until 2027 – despite the backlash against the recently announced freeze.

* Link the student loan interest rate to the – higher – RPI measure of inflation, scrapping interest for students from 2023, both during studies and after graduation.

* Extend the period before loans are written off from 30 to 40 years for new students – meaning many will be nearing retirement before they are out of debt.

* Deny loans to students who fail to achieve at least two Es at A-Level or at least a grade 4 pass in English and maths at GCSE.

* Promise almost £900m of new investment in higher education over three years – including £300m of day-today spending and £450m in capital funding.

Nadhim Zahawi, the education secretary, said the changes would “create a fairer system for both students and the taxpayer”, while making “higher education accessible and accountable”.

“This package of reforms will ensure students are being offered a range of different pathways, whether that is higher or further education, that lead to opportunities with the best outcomes,” he said.

But the document makes little attempt to hide that the motive is to save money, calling the current funding system “unsustainable” – with student loans totalling £161bn in April 2021.

Without action, those loans will reach more than half a trillion pounds in 20 years, ministers say, by which point only 23 per cent of new borrowers will be repaying them in full.

Taxpayers – most of whom have not been to university – are funding 44p of every pound of student loans, but will pay less than 20p under the new system, they argue.

The Augar report, published in the dying days of Theresa May’s government, saw her plea for the return of maintenance grants for low-income students, axed by George Osborne in 2015.

But, speaking in May 2019, the outgoing prime minister admitted it would be a decision for her successor.