Cost of living crisis for FT study?

Not a month passes without strident condemnation of student loans appearing in the mainstream press. You might think that’s welcome and that the costs of undergraduate study are now too high.

I agree with the latter point, but have become concerned about ill-informed criticism, which would leave readers with the impression that Student Loans Company loans are to be avoided and that there exist cheaper, private options for financing study.

If the undergraduate system in England is broken, it’s not because fees are unaffordable, but because costs of living exceed maintenance support to the extent that students have to turn to other debt (overdrafts, credit cards, commercial loans, payday loans etc.) or undertake excessive work in term time.

No government has yet committed to the principle that maintenance loans should cover living expenses, but it’s quite clear that the discrepancy there has become much bigger in the last decade. The main culprit is rent, which has more than doubled for students in the last decade. (Note that moneysavingexpert has been making a different point recently about expected parental contribution. That would cover the difference in loan amounts available to students from different households. My point is that even with that assumed parental contribution there is a growing, critical deficit.)

Students starting study in 2016 were able to access £10 700 in maintenance loans per year if living away from home in London and coming from households with an income below £25 000. (A £999 increase in cash on the previous grant and loan combination).

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But no one thinks that goes much further than covering rent in the capital and there are similar pressures on students in some other cities (and up to £2 500 less per year in loan).

The government is currently sitting on the latest student Income-Expenditure survey, which looks at 2014/15. (The previous report looked at 2011/12.)

But the issues are getting covered. A story in the Independent last week gives some stark details. A survey from Intelligent Environments found that 39 per cent of students ‘cannot afford their weekly shop’ and found that the average student loan had been used up by ‘the sixth week of term’.

Over a quarter of students admitted to missing rent payments, with three in five polled (58 per cent) running out of money completely before their next [rent] payment is due.

These pressures led to 1 in 7 being chased by debt collectors over those missing rent payments, while  58% were using overdrafts, 6% credit cards and, most worryingly, 9% payday loans. Although these debts will have lower nominal balances, the repayment terms are more onerous for most students and graduates.

Unfortunately, the Independent undermined the story by conflating different kinds of debt. (… and compounded its error by talking to Intergenerational Foundation, who are so keen to tell the world about the evils of interest that they’ve never bothered to work out the function of interest in income contingent repayment loans.)

SLC debt is subsidised and offers protections to low earners through the repayments threshold (the repayments on loans are income contigent). It would be far better for students if maintenance loans were increased substantially to cover the whole of term, so that the place of commercial debt was eliminated and student felt less pressure to take on paid work. (It would have been far better for the government to have put the money available for new postgraduate loans into undergraduate maintenance loans).

Otherwise we may be close to – or already at – the point where it would be irresponsible to encourage would-be students to look at studying full-time, away from home in London.

And those of us who teach in London institutions will have to do more than shake our heads at the latest story about student hardship.