Students going to university this year will be left as much as £1,200 worse off in the coming academic year after Government forecasting blunders left maintenance loan increases trailing inflation.
The cash value of maintenance loans will increase just 2.3pc this year, according to the Institute for Fiscal Studies, despite expectations inflation will be running at around 8pc by the start of the academic year in September.
Students from the poorest families will be able to borrow £9,706 for living costs during the upcoming academic year. That is the lowest loan in real terms since 2016/17, when a "substantial proportion" of the support was provided through grants rather than loans.
Ben Waltmann, a senior research economist at the IFS, said the shortfall occurred because of inaccurate forecasting. The Government pegs annual increases in maintenance loans on predictions from the Office for Budget Responsibility for retail price index inflation, excluding mortgage costs (RPIX).
"The cuts arising from these forecast errors are large," he said. "For the poorest students, the loan entitlement would already be £9,980 in the current academic year had the forecast for RPIX inflation between 2020/21 and 2021/22 been correct, and would be £10,860 in the next academic year if the uplift was in line with the latest OBR forecast for RPIX inflation.
"This means that merely because of forecast errors, students from the poorest families will be £1,200 out of pocket in the next academic year, or around £100 per month.
"Remarkably, there is no mechanism in place for these errors ever to be corrected… As a result, the current maintenance loan cuts will in principle remain in place forever – unless and until policy changes."
The maximum loan entitlement will be more than £1,000 short of what a 22-year-old student would earn if they worked a minimum wage job instead of studying – the biggest gap since 2003/4.
Mr Waltmann predicted the shortfall could discourage some prospective students from entering higher education.
Mr Waltmann said: "[Its] effect will be particularly painful in times of high inflation: many students' parents will see their income rise in cash terms but fall in real terms. As a result, many students will be eligible for smaller maintenance loans, even though their parents will be less able to support them."
"We have frozen tuition fees for a fifth year in a row and announced a £75m National State Scholarship to give talented people from low-income backgrounds direct financial support."
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