The Government today announced plans to increase the tuition fee cap for English-domiciled undergraduates from £9,250 to £9,535 for the 2025-26 academic year. This is in line with the Office for Budget Responsibility’s latest inflation forecast, measured by the RPIX (3.1%).

This ends a long-standing freeze on the fee cap, which had only been increased once since 2012 (from £9,000 to £9,250 in 2017). Compared to a continued freeze, the increase in tuition fees will spare the higher education sector from a further real-terms reduction in teaching resources of around £390 million next academic year.

As well as increasing tuition fees, the government has confirmed that maximum maintenance loan entitlements will increase by £414 in the 2025-26 academic year. A student living away from home outside London with a household income of less than £25,000 was able to borrow up to £10,227 for the current academic year, which therefore appears to represent an increase in cash duties of around 4% – or maybe 1.6. % once price increases are taken into account. This fails to reverse substantial real-terms reductions in maintenance system generosity since 2020-21, leaving the poorest students able to borrow around 9% less in real terms than in 2020-21 (the recent highlight).

Historic pressure on educational resources

As a result of the long-term freeze on tuition fees, the resources available to universities for undergraduate education have been eroded in real terms. Increases in teaching grants – which now represent around a tenth of overall teaching resources – have not offset substantial real-terms reductions in the tuition fee cap. For students starting in 2022, annual teaching resources were £10,010, only slightly more in real terms than in 2011, the year before the tuition fee cap was trebled.

Universities have so far been able to partially make up for the decline in domestic student income with an increase in tuition income from international students. Non-EU international students made up 38% of full-time students at English universities in 2022-23. International students are not subject to the tuition cap and generally pay higher or much higher tuition fees. But fall student visa numbers suggest that universities can no longer rely on ever-increasing international tuition revenue. Maintaining the tuition freeze indefinitely – at least without additional direct teaching subsidies to universities – seemed untenable.

If the Government continues to increase fees in line with the RPIX each year, the tuition fee cap could reach £10,680 in 2029-30, according to current forecasts. If the government plans to continue increasing the tuition fee cap in line with inflation, it should say so – and provide some certainty for universities and prospective students.

Initial higher education funding per student per year under different tuition fee policies, prices 2024/25

_{Note: Higher Education figures are initial resources available for teaching undergraduates at home and figures based on a cohort divided by 3 – an approximate course length in years. We assume that education grants per student are constant in real terms after 2024-25 and that fee waivers and scholarships are constant as a proportion of tuition fees. The real figures reflect the expected GDP deflator.}

Reductions in maintenance support generosity will be incorporated

Recent years have seen a substantial and effective reduction in maintenance loans (which help students cover their living costs). Under the previous government, loans were increased each year based on expected inflation – but the figures were not reviewed when inflation turned out to be higher than expected, as happened several years in a row. Based on the CPI, a measure of consumer prices, duties were reduced by 10.5% in real terms between 2020-21 and 2024-25.

Today’s announcement will see alimony increases slightly more than CPI inflation forecast for next academic year. But this will still leave support for the poorest students around £1,030 (9%) lower in real terms than support given to an equivalent student in 2020-21.

Maximum food support entitlements per year for students living away from home, outside London, prices 2024/25

_{Note: All monetary amounts are expressed in real CPI terms. To align with government calculations, the price level for an academic year is taken to be the price level of the first calendar quarter falling in that academic year. For each academic year, the table reflects the retention system as it applies to new students.}

Who will pay the higher tuition fees and maintenance loans?

Rising tuition fees and maintenance loan entitlements will increase student borrowing. Under current student loan terms, we expect that approximately a quarter of the additional loans issued as a result of today’s announcement will ultimately be forgiven and assumed by the taxpayer. These additional loan cancellations are considered capital expenditure and therefore have no impact on the government’s ability to respect its “stability rule” (current budget balance) – unlike an increase in direct grants to universities or maintenance grants, which would be considered current expenses. expenses.

For students, the immediate impact of today’s announcement will be an increase in tuition fees and a very small real-terms increase in cost of living support next year. For many, this will mean graduating with student loan balances on higher cash flow terms. In the long term, we think graduates will end up repaying about three-quarters of any additional loans.

But for most students, the impact on actual student loan payments won’t be felt for many years. This is because until the loan is repaid, monthly loan repayments depend solely on the borrower’s income and not on their outstanding loan balance. Among those who start their studies in 2025 and study for three years, less than a third of borrowers will see a difference in their loan repayment before reaching age 40 (assuming they start their studies at 18 years old). They could then continue to repay their loan for a few months longer than they otherwise would have. About one in five borrowers will never pay again because they will never repay their loans even if the freeze continues.

Kate Ogden, senior research economist at the Institute for Fiscal Studies, said:

“University vice-chancellors will breathe a sigh of relief that the government is not extending the tuition fee freeze, sparing universities a further real-terms reduction in their resources of around £390 million for the year next university. Of course, higher tuition today means higher student loan payments in the long run – with graduates ending up paying off about three-quarters of the additional borrowing resulting from today’s announcement.

Support for students’ living costs will also be protected in real terms. But above all, the government has decided not to reverse the substantial reductions in real terms in the generosity of support seen in recent years. Even after the increase, the poorest students will be allowed to borrow around 9% less next year than an equivalent student five years earlier.