New figures show problem of a “minimum income” for students based on loan

In August 2012 the then Cabinet Secretary for Education, Michael Russell MSP, announced what was termed “the UK’s best student support package”.  At the centre of this claim was an increase in living cost support, with the maximum in  Scotland exceeding £7,000 for the first time, for students from homes with incomes below £17,000.

To obtain what was termed the “minimum income” students needed (a) to receive the maximum grant (£1,750 for young students and £750 for mature ones) and (b) willing to borrow the rest of the money.

The Cabinet Secretary said:

A minimum income of £7,250 will be available to those from the lowest income households and I expect this will benefit around 45,000 students each year.

The new rules took effect  in 2013-14, for new and continuing students.  The Scottish Government has made no further announcement on how many students have benefited from the minimum income in practice.  However, recently answered parliamentary questions (linked here) provide evidence on this for the first time.  They show that the numbers benefiting from the “minimum income” have been much lower than predicted and that debt aversion appears to have played a part in that.

These show that 25,130 students,  a little over half of the original estimate, benefited from the minimum income of £7,250 in 2013-14.

The estimate itself always looked surprisingly high, given that the total number of students claiming a grant with an income below £20,000 in 2011-12 (the most recent year on which figures were available in summer 2012) was only 38,500 and the cut-off for maximum grant in future would be £17,000.

However, initial optimism has also encountered an effect the government might have predicted from its own earlier position on student debt.  The figures show that many students eligible for grant have chosen not to top it up with any borrowing.  As grant is now very low, a lot of borrowing was needed to achieve £7,250: £5,500 for young students or £6,500 for mature students.

Other PQs  in the same set show there were 34,670 students  on full grant who could in theory have claimed the full minimum income package – getting nearer the 2012 estimate, although still leaving a pretty large a gap.

This means 9,540 students,  28% of those who were the target for this policy, did not benefit because for whatever reason they were not prepared to borrow what was needed.

The PQ figures allow us to go further and identify that most of those 9,540 borrowed nothing at all. In other words, what’s not happening here is that lots of students living at home are just taking out a bit less than the full £7,250.

Among all 32,930 YSB claimants, including those with incomes too high to be on the maximum rate of grant, the PQ answers show that only 1,775 borrowed something less than the whole amount: the rest borrowed nothing.  Among ISB claimants, only 300 were partial borrowers. Students mainly either borrowed as much as they could or limited themselves to the (reduced) grant alone.

Most of the 9,540 students on maximum grant but not getting the full package of support were somehow getting by on just £1,750 or £750 of state support, unlikely to go very far, even for those living at home (homes with a weekly pre-tax income of no  more than £350, by definition).   The student quoted towards the end of this earlier post, worrying about how she would manage on just this new lower grant,  turns out not to be so unusual.

The only effect of the August 2012 announcement on this large minority of the poorest students  was, therefore, to deprive them of grant: there was a cut of £250 for mature students and £890 for young ones. It also now seems likely that some students from incomes just over £16,999 coped with an even higher loss of grant – £1,640 – by taking much  less state support than before.

Much of the explanation for this may lie in a report from April 2013 written by the Scottish Government itself, which said:

the fear of debt and cost of study can potentially dissuade prospective students to going to university. People from disadvantaged family backgrounds are especially vulnerable in this respect … Those from less privileged backgrounds were more likely to be concerned about debt, and those most averse to debt were among the less willing to participate in HE.

So

• the initial estimate looked very optimistic, on any terms
• the eventual outcome fell far short of what was trailed
• one reason it fell so short appears to be that a substantial minority of low-income students were not prepared to take on the extra borrowing being pushed at them, not even to make up for lost grant.

As debt goes, student loan is about as good as it gets, because of its income-related repayment and guaranteed write-off after a set period, and many of these students might  have been well-advised not to be so wary of it, if the alternative was taking on massive amounts of paid work, or missing classes because they couldn’t afford to travel in so often, or even dropping out.

But the Scottish government has to take considerable responsibility in these cases: it routinely talks up the perils of student debt in its critique of the English system and was originally elected on a platform highly critical of all student debt in Scotland too.  Ministers may since have become  converts to  a heavy reliance on student loan to prop up living cost support in Scotland: but they should not be too surprised if some students – and their families, and maybe some of those advising them – have been less quick to change their attitude.

If the Scottish Government is not prepared to provide (a lot) more grant, it needs at least to start having a more honest and helpful conversation with young people about how student loan works. It ought to have had that conversation, indeed, before it withdrew grant and moved to  more reliance on loan at low incomes.  Riding two horses on good debt and bad debt may work politically, but it’s just confusing and unhelpful for students themselves.  Until that changes, it appears that a significant minority of students  from the very lowest incomes will  – in effect – be limiting themselves to what are now minimal levels of cash help from the state.

Footnote on numbers

38,500:  From Table 12 here, adding together the figures for students exempt from contribution and those at incomes up to £19,999 in the ‘awards’ column – the published data doesn’t allow a cut-off to match the new grant threshold of £16,999.  The figure for all students claiming any support (fee, loan or grant) in these categories was 44,630: the difference is likely to be due to different eligibility rules for different elements e.g. some EU students may have been included here who qualified for fees but not grant.

25,130 students on the minimum income:  the PQ answers show that in 2013-14 11,485  students eligible for the Young Student Bursary and 13,645 students eligible for the Independent Student Bursary were paid the minimum income in 2013-14.  25,130 is 56% of 45,000.

34,670 potential beneficiaries of the minimum income:  to obtain the minimum income, a student needed to be eligible for grant at the highest rate (that is, to be assessed as coming from a household with an income under £17,000) and also choose to borrow the maximum available loan. The PQs show there were 17,330  students on Young Student Bursary at incomes entitling them to the maximum and 17,340 (coincidentally)  on the maximum  Independent Student Bursary: these students all ought have been entitled to borrow the amount needed to reach £7,250 (with minor exceptions – students over 50 cannot take out a loan).

9,540:  34,670 less 25,130.