Middle class families are doomed

Tuition fee reforms will see students from middle class backgrounds paying over the odds for university in order to subsidise those from lower income backgrounds.

In the race for the most overused yet least understood political phrase of the last year – there are two strong contenders.

The first; it’s got to be ‘the Big Society’.

And the second; well I’d go for ‘the squeezed middle’.

This prime piece of politicking was coined by the Labour leader Ed Miliband late last year. Yet he seemed a tad confused as to who exactly these squeezed citizens were. According to the Conservative Party, he used six different definitions for the phrase in just one interview.

But there is one government policy set to come in that could squeeze a very clear group of middle class families.

Rising fees

Unless you’ve been living under a rock for the last year, you’ll know the Coalition Government has been tinkering with university tuition fees. As a result, the maximum limit a university can now charge stands at £9,000 per year. But the government say this can only be charged in ‘exceptional circumstances’.

Well it seems that there are a fair few ‘exceptional circumstances’ out there at the moment, as 70% of the universities that have set out their tuition fee intentions have opted for the maximum £9K. But in order to make this fee hike, the universities must waive costs for students whose parents earn less than £25,000 per year.

This means that in a majority of universities, students from more affluent, middle class backgrounds will pay more fees in order to subsidise those students from low income families. In some cases this could mean a student from a family earning just over £25,000 will pay several thousand pounds more a year than a student from a household earning just under £25,000.

But of course if you’re starting university any time soon it’s highly unlikely that you’ll pay anything up front when you start your course, as most students will take out a loan for tuition fees.

However – despite how it may feel when you’re slurping down snakebites in the union bar – you do have to pay this loan back. And when you do, you could find that you’re repaying a far higher amount than another graduate who took the same course and has the same job, solely because your parents earn more than theirs do.

But the Government’s university shake up is not just going to alter how tuition fees are charged and paid for.

Shrinking grants

The non-repayable Maintenance Grants and repayable loans that students receive to fund general living costs will also change from the 2012 academic year. The overall effect of this alteration will see students from middle class families receiving smaller grants while those from low income backgrounds will have their grants increased.

Universities Minister David Willetts called this a ‘strange kink’ in the system. But if you’re from a household with an income of between £45,000 and £52,500 – you’ll see this ‘kink’ as less strange and more frustrating.

Here’s a table showing exactly how the grant levels will change depending on your household income (based on a student living away from home and studying outside London):

Source: Direct.gov.uk and bis.gov.uk

As you can see, if you come from a household with a total income of £45,000 per year – you’ll be £381 worse off if you start university in 2012 than if you start studying in 2011. But if your family earns less than £25,000 per year you’ll be £344 better off if your course starts in 2012 than if it starts in 2011.

The government have also upped the amount each student can borrow in an attempt to close the gap left by cutting grants. But as I mentioned earlier – loans have to be paid back, grants don’t.

When you combine these changes with the slashing of child benefit for families earning over £44,000, Ed Miliband’s ‘squeezed middle’ seems to emerge as any household earning around £45,000.

But if you are starting university soon there are a few things you can do to stay on top of your finances.

Uni finance tips

Get the right account: When shopping around for a student bank account you should be looking for the deal with the largest and longest 0% overdraft. This is cheapest way to borrow money as a student and could be a vital lifeline if your loan runs out. But remember, this overdraft won’t be free forever. Most accounts start charging a year after you graduate, so make sure you start paying it back after you leave university.

It’s likely your bank will also offer you a student credit card. Personally, I steered clear of credit cards throughout university for fear of a sudden onset of generosity on a night out! But if you really need one, look for the longest 0% purchase deal and make sure you pay off your balance before it starts charging interest.

Most banks will begin to release their student accounts in the run up to September and you can compare all the best deals using our current account centre.

Budget: It’s tempting when you’re at uni to ignore your account balance and go crazy with your loan all day and night. But this is a seriously bad idea! Before you start, set yourself a weekly budget. Factor in transport, food, materials for your course and put aside additional cash for extra-expensive periods such as freshers' week and the post-exam celebrations.

Read Managing your finances at university for some more advice.

Use discounts: Ask about discounts everywhere – you’d be amazed how many companies offer special deals to students, especially in university cities. Check out Seven essential money-saving tips for students for plenty of links to university discount and deal sites.

Get a job: Working a couple of shifts every week is a good way to supplement your income. I worked casually in promotions for a radio station when I was studying. This meant I could essentially pick my shifts and the media connection was good for the CV.

Holiday work throughout the summer and Christmas breaks is another good way to stock up some cash before you head back to university.

What do you think?

Are these changes fair? Should students from higher earning families pay more than those from low income backgrounds? Do you agree with the tuition fee rise?

Let us know your thoughts in the comment box below.

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