IFS: Scottish Government boosts support for students’ living costs, but further cuts funding for universities to teach them

The Scottish Government has boosted support for students’ living costs from September through increasing the amount students can borrow by £2,400 a year. Graduates, on average, are set to repay two-thirds of this additional loan, with the UK government meeting the cost of the remaining third in the long run as unpaid loans are eventually written off and paid for by the UK taxpayer. But boosting funding for universities’ teaching costs – which has already fallen by 19% in real terms per student over the last decade – is likely to be much more challenging. Indeed, the 2024–25 Budget announced a further 3.6% cut in funding.

These are among the findings of new analysis of higher education spending in Scotland, published today as part of the Institute for Fiscal Studies’ second annual Scottish Budget Report. Other key findings include:

• Support for the living costs of Scottish students is worth around £600 million each year, through a mix of loans and grants. This support had become less generous over time, with total support for the poorest students cut by 16% (£1,600 per year) in real terms between 2013–14 and 2022–23. A £900 cash increase this academic year in the amount students can borrow was the first real-terms increase in at least a decade.
• Students will be able to borrow £2,400 more per year towards their living costs next academic year, a real-terms rise of 24% for the poorest students. This delivers on the Scottish Government’s commitment to provide a total package of support ‘the equivalent of the Living Wage’.
• From April 2024, the earnings threshold above which Scottish graduates make loan repayments will increase from £27,660 to £31,395 (whereas the threshold for most recent graduates in England and Wales will be frozen at £27,295). This will reduce monthly loan repayments for many by around £28, although the highest-earning half of Scottish graduates can still expect to repay their loans in full over their lifetimes.
• These increases in generosity for students and graduates will not cost the Scottish Government a penny. This is because the UK government currently finances the issuing of loans to Scottish students, and bears the cost of any eventual loan write-offs, as long as the Scottish system has ‘broadly comparable costs’ to arrangements in England. If students took up all the living cost support they were eligible for, the changes planned for 2024 would increase average UK government loan write-offs by around £3,400 per student.
• The Scottish Government spends around £900 million each year on tuition for Scottish undergraduates who stay in Scotland to study, equivalent to £30,000 per student over their whole degree. This is similar to funding per student in England, where degrees are typically a year shorter.

Finding much more funding for universities will be difficult given the Scottish Government’s commitment to ‘free tuition’ for students. Under the current system, boosting per-student funding requires cuts to student numbers, or reallocating spending from other areas of the Scottish Budget. The option taken by England has been to introduce tuition fees. Doing this in Scotland would require Scottish graduates to contribute more, or, if it substantially increased loan write-offs, risk HM Treasury reassessing current arrangements under which the UK government funds Scottish loan write-offs.

Alongside the report, researchers have launched an interactive online tool which allows users to consider the cost and distributional impacts of the current funding model for higher education in Scotland, and to model potential changes. This can be found at: https://ifs.org.uk/calculators/student-finance-calculator-scotland.

Kate Ogden, a Senior Research Economist at the Institute for Fiscal Studies and an author of the report, said:

‘Next academic year, Scottish students will be able to borrow much more to help with their living costs while they study. But the Scottish Government has made cuts to spending on undergraduate teaching in the 2024–25 Budget. This will reduce further the per-student resources universities receive and also mean fewer places for new Scottish students.

‘Given the challenging financial position the Scottish Government faces, it is important to recognise that the Scottish Government’s commitment to free tuition comes with trade-offs. The Scottish Government spends around £28,700 more per student than it would if it were to adopt English arrangements for higher education funding and keep its four-year degrees. It is worth noting that around £4,900 of that spending benefits UK taxpayers, instead of Scottish graduates, through reducing UK government loan write-offs.’