Government's Share of UK Degree Costs Drops Sharply to 16%

The government's contribution to the cost of undergraduate degrees in England has fallen to just 16%, according to new analysis by London Economics. This marks a substantial decrease from the 48% state contribution recorded in the 2012-13 academic year. Consequently, students and graduates are now responsible for covering the remaining 84% of their degree costs, a significant rise from the 52% they bore 12 years prior.

The report, commissioned by Universities UK, which represents university vice-chancellors, defines government contribution as direct funding, including teaching grants, and the estimated costs absorbed by the Exchequer from future loan write-offs. Student loans are typically cancelled after 30 or 40 years, depending on the repayment plan.

Vivienne Stern, chief executive of Universities UK, stated that successive governments have increasingly shifted the financial burden of higher education onto graduates. She emphasized that the original fee system was intended as a co-payment model and called for a reassessment that acknowledges the broader societal benefits of graduates, such as increased tax contributions and staffing of public services.

This analysis emerges amid discussions about student finance in England, with Education Secretary Lucy Powell facing pressure regarding potential changes to the terms of Plan 2 loans.

Separately, a report from the Organisation for Economic Co-operation and Development (OECD) found that the UK has significantly reduced state funding per university student in recent years compared to most other nations. This OECD study focused solely on direct government funding to universities, excluding loan forgiveness. Between 2015 and 2023, the UK saw an 8.8% decrease in government spending per student, with only Finland and Bulgaria experiencing larger reductions in the same period. Across the 34 countries included in the OECD study, state spending on students increased by an average of 10.2%.

In response to the trend, the former Chancellor Rachel Reeves announced that the earnings threshold for Plan 2 loan repayments would be frozen for three years from 2027 at £29,385. This measure is expected to draw more lower earners into repayments and increase the amount higher earners repay, as the threshold will not keep pace with wage growth.

Education Secretary Lucy Powell has indicated that ensuring fairness in the student loan system is a priority. A Department for Education spokesperson commented that the government supports the higher education sector by raising tuition fee caps in line with inflation and providing funding for high-cost subjects and skills shortages. The spokesperson added that efforts are being made to improve the student finance system, increase maintenance loan support, and reintroduce targeted grants, asserting that higher education costs should be shared fairly and sustainably among students, graduates, and taxpayers, while also supporting the sector's financial stability.