The briefing note finds that reintroducing grants of £3,500 would increase deficit spending by around £1.7 billion, but the long-run cost is only around £350 million. This reform would reduce the debt on graduation of students from low-income backgrounds taking a three-year degree by around £11,000.
Commenting on the analysis, Alistair Jarvis, Chief Executive of Universities UK, said: "We agree with the IFS that there are ways the government could improve the current student funding system in England. While the current system has provided sustainable funding and promotes access, it needs to be better understood and needs to feel fairer to our students and their families. This analysis from the IFS provides a useful contribution to the ongoing debate.
"Students tell us that it is cash in their pockets while studying that matters most. We would like to see the government provide new investment to bring back maintenance grants aimed directly at those students who find it hardest to meet day-to-day living costs when they are studying. We also need to boost flexible learning through more government support for adults to retrain or improve their skills."
The IFS briefing note Options for reducing the interest rate and reintroducing maintenance grants is available to view on the IFS website. The analysis was funded by Universities UK.
In October, the Prime Minister called for an inquiry into the student loan system for higher education in England. This briefing note will be submitted as evidence for the inquiry.
In her Universities UK annual conference speech in September, Professor Janet Beer, President of Universities UK and Vice-Chancellor of the University of Liverpool outlined how the government should look again at grants for living costs and interest rates for some graduates in England.
Prof Beer expanded on this in an article for The Guardian: A solution to the row over tuition fees – bring back maintenance grants