Economists warn government using inflation as ‘cover’ to cash in on graduates and students

Institute for Fiscal Studies says changes could cause ‘genuine hardship’ for poorer students

Graduates will be hit by the change (Getty Images)

The government is using inflation as "cover" to take more money from graduates and students, a respected economic think-tank has said.

The Institute for Fiscal Studies warned on Thursday that a freeze to the repayment threshold and large real-term cuts in maintenance loans could cause "genuine hardship".

Inflation has hit highs not seen since the early 1990s but the government has decided not to increase the size of student maintenance loans or increase the repayment threshold to match.

As a result the real-terms value of the loans has fallen, and people earning lower salaries are being sucked into having to make more or higher repayments.

"The government seems determined to use high inflation as a cover for reducing the taxpayer cost of student loans," said Ben Waltmann, senior research economist at the Institute for Fiscal Studies.

"Large real-terms cuts in maintenance loans could cause genuine hardship for students on tight budgets.

"A freeze in the repayment threshold mostly hits middle-earning graduates, whose budgets are already being squeezed by the rise in the cost of living, the freeze in the personal allowance and the hike in National Insurance.

"And the extension of the freeze in maximum fees will add further pressure on universities, while only benefiting the highest-earning graduates.’

The freeze to the repayment threshold for fees is likely to cost graduates around £150 extra a year in money taken from their payroll.

Announcing the change at the end of January, Michelle Donelan, the higher education minister, said it would make sure the university funding system was providing “value for money for all of society at a time of rising costs”.

She added: “Maintaining the repayment threshold at its current level, alongside the ongoing freeze in fees, will help to ensure the sustainability of the student loan system, while keeping higher education open to everyone who has the ability and the ambition to benefit from it, including the most disadvantaged.”