| Practice area: | Education and Labour Markets |
|---|---|
| Client: | National Union of Students and University of the Arts London |
| Published: | 23 April, 2025 |
| Keywords: | economics of education higher education 2025 Public Policy |
London Economics were commissioned by the National Union of Students and University of the Arts London to model the costs of the existing undergraduate higher education fees and funding regime, and an alternative funding system proposed by the NUS consisting of the reintroduction of maintenance grants for the least well-off students, combined with a ‘stepped repayment’ system.
The main features of the maintenance grant and stepped repayment system include:
- Re-introduction of means tested maintenance grants up to a maximum of £4,224 on top of maintenance loans;
- Stepped repayment rates of
- 2% on earnings between £12,570 and £27,570;
- 4% on earnings between £27,571 and £42,570;
- 6% on earnings between £42,571 and £57,570; and
- 8% on earnings of £57,571 or more;
- Re-introduction of real interest rates post-graduation (between 0% and 2%) for graduates with earnings between £27,571 and £57,570; and
- A reduction in the repayment period by 5 years to 35 years.
The modelling found that the alternative system had almost identical Exchequer costs to the current system but allowed for greater levels of maintenance support for the poorest students, whilst making the repayment of student loans more progressive. Specifically, under the alternative system:
- The public purse would contribute approximately £3.618 billion per cohort of English domiciled students, representing an £86 million (4%) increase compared to the current system.
- The re-introduction of maintenance grants increases Exchequer costs by approximately £1.746 billion. However, the new repayment terms would reduce the RAB charge from 11.7% to 3.0%, meaning that graduates (on average) pay back a higher proportion of their loans, saving the Exchequer £1.660 billion.
- Maintenance support would be increased for all students whose household income is less than £42,736, with a maximum of £4,224 of additional support focussed on those with the lowest household income.
The report can be found here.