HE in England from 2012: Funding and finance

This briefing paper will not longer be updated.

It focusses on the first few years after the 2012 reform of higher education in England. For up to date analysis of higher education funding see the new paper: Higher education funding in England

In his summer Budget 2015 the Chancellor announced that maintenance grants would end for new students from 2016/17 and be replaced by loans. He also announced consultations on freezing the repayment threshold for five years, allowing some universities to increase fees in line with inflation from 2017 and a review of the discount rate applied to the accounting treatment of loans. These are the biggest changes to student finance since 2012.

Spending Review 2015

The Spending Review announced: Funding for science would be protected in real terms over the Parliament, a £120 million cut in teaching grant by 2019-20, a cut in the student opportunities fund (widening participation) by up to half and 'savings' in other areas of teaching grant.

Alongide the Spending Review the Govenment announced decisions on its earlier consultations: The repayment threshold will be frozen for all post-2012 students for at least five years from April 2016 and the discount rate used for loan accounting will be cut from 2.2% to 0.7% above inflation. The combined effect is to reduce the Government's estimate of the RAB charge (or subsidy element) on loans from around 45% to 20-25%.

The Government raised the cap on tuition fees for new student to £9,000 in 2012/13 and cut most ongoing direct public funding for tuition in England. This shifted the balance of higher education funding further away from the state and further towards the individual who benefits. Students can take out publicly subsided student loans to pay these higher fees. There is uncertainty about the final size of this subsidy and the Government’s estimate of it has increased considerably since the reforms were first announced. This also affects the size of any saving in public expenditure and the extent of the shift in costs from the state to the individual beneficiary.

This note looks at the impact of these changes and subsequent announcements on public expenditure on higher education in England and on funding available for higher education institutions in England. It builds on the analysis of funding in Changes to higher education funding and student support in England from 2012/13. That note summarises the Government’s reforms and looks at the potential impact on graduates, universities and public spending. It looks in detail at a number of areas which are only touched on in this note, including, the possible impacts on graduate repayments by income decile, the earnings assumptions behind the loan repayments model and the effect of different average fee levels.

In his summer Budget 2015 the Chancellor announced the biggest changes to student finance since 2012:

• Maintenance grants will end for new students from 2016/17 and be replaced by loans.
• A consultation on freezing the student loan repayment threshold for five years
• Allowing universities offering ‘high teaching quality’ to increase fees in line with inflation from 2017
• A review of the discount rate applied to the accounting treatment of loans.

These changes are expected to result in savings to current spending when grants are replaced and a substantial cut in the subsidy element of loans, largely due to the lower discount rate. This note summarises some evidence on the possible financial impact of these changes.