Nicholas Barr (1987), The Economics of the Welfare State, Weidenfeld & Nicolson and Stanford University Press, pp. 354-7.
It has been suggested that the British system of paying grants (i.e. gifts) out of tax revenues to students to finance their university education should be abolished and replaced by loans. One reason (see Farmer and Barrel, 1982) is the failure of the grants system to remove all financial barriers to university attendance, partly because inequalities in school education cause a disproportionately high attrition rate among children from disadvantaged backgrounds, and partly because of the grants system itself. The latter reason sounds paradoxical. The argument is that the reduction in the real value of the student maintenance grant by nearly 20 per cent between 1963 and 1982 eroded the differential between the grant and juvenile earnings (which rose substantially); and that the means-tested parental contribution caused disproportionate problems for working-class students, and probably also for women. Both factors tended to reduce working-class applications (i.e. demand) to universities. Additionally, on the supply side, grants are costly, and university places therefore rationed by controls on public spending. These problems, it is argued, would be ameliorated by a system of loans.
The following discussion does not look at any specific proposals […], but sets out in turn the general way in which loans operate; some examples