Though there is still work to be done and some details to be ironed out, it’s clear that student loans and higher education policy are now in for a big shake-up.

Prime minister Theresa May might be tempted to say “nothing has changed”, as it doesn’t mean that the government is borrowing any more to fund loans or that the cost of providing them changes.

The Office for National Statistics (ONS) is simply saying that these are not really like normal loans so they shouldn’t be treated as such in the national accounts.

Student loans differ from normal commercial loans and are treated as assets that will largely be repaid over time, because there has always been a deliberate policy of making them “income contingent”.

This has meant that building in a threshold of £25,000 before any repayment and a 30-year cancellation of outstanding debt has taken them out of normal accounting conventions and into the new territory set out today by the ONS.

As ministers often say, “these are not like normal loans”, and after their short review, the ONS agrees.

To cut to the chase, this means that the costs written off must hit the accounts when they are issued rather than in 30 years’ time when they are written off.

Doing so makes the cost of student loans suddenly look much more expensive in the short-term (even if in reality there isn’t any additional cost).

A ‘subsidy for HE’

The significant subsidy for higher education - universities and colleges get the student-loan money now - becomes much more transparent and can be seen as a conscious policy choice alongside other options. Or not.

As the Institute for Fiscal Studies has said, “the previous system appeared absurdly generous to the government in the near-term when it arranged transfers as income-contingent loans rather than as grants. Today’s accounting change makes this relatively less attractive, and as a result, makes a system that is more reliant on grants appear relatively less expensive.”

By exposing the subsidy, in current spending terms, the ONS has opened up some very significant policy choices for the government and for Philip Augar, who is currently chairing the review of post-18 education.

Initially penned-in by terms of reference demanding that “recommendations must be consistent with the government’s fiscal policies to reduce the deficit and have debt falling as a percentage of GDP”, the review panel now know that merely maintaining the system in its current form would blow the deficit wide open - to the tune of something like £12 billion. The status quo may have looked an attractive option back in February when the review was launched, but not anymore.

‘All this could now change’

In theory, Augar now has many more options to consider. Restoring grants or introducing new ones - whether for learners or institutions - may cost no more than offering loans.

Furthermore, now that it is clearer that a subsidy exists and is very costly, he can decide to “spend” it in any number of different places.

Up until now, that subsidy has largely gone to three-year full-time degrees, regardless of institution or course. And it has got to them via student loans and high levels of nominal debt and interest. All of this could now change.

Augar may decide that he wants to spend more money on restoring grants for the most disadvantaged, on support for level 4 and 5 higher technical learning, or on part-time higher education.

All would help to construct a more balanced tertiary offer, also in line with his terms of reference and both education secretary Damian Hinds’ and Theresa May’s thinking.

He may also want to find money for restoring at least some teaching grants for higher education institutions if, as is strongly rumoured, he recommends a significant cut in fees to £6,500.

All of these choices might, in the short-term accounts at least, cost no more than sticking with the current system of student loans. No wonder he wanted to wait until the ONS had made its decision.

Less generous earnings thresholds?

But these are still theoretical possibilities. Others also exist.

Firstly, the Treasury, stung by having its precious deficit target and claims to fiscal competence thrown into disarray, may demand options that reduce its exposure to political and financial damage.

That might mean making student loans more like normal commercial loans with less generous earnings thresholds and longer repayment terms.

It might also mean that the government chooses to lend less in the first place. Augar and the Department for Education may also not be allowed to spend the subsidy in new ways.

As the likes of David Willetts and Nick Hillman at the Higher Education Policy Institute have consistently pointed out, the spending review next year will pit all education spending options, including for schools, alongside those in health, defence and other public services. In those circumstances, neither higher nor further education tend to win very often.

The ONS decision today has opened up a large number of new options, including for reforms that might help construct a more comprehensive, joined-up tertiary system. It also offers the opportunity for universities and colleges to lobby for teaching funding to replace any cut to fees.

But all of these options will eventually feed into a spending review that may ultimately care much more about other decisions, choices and headlines.

Andy Westwood is vice-dean for social responsibility at the University of Manchester. He is also a visiting professor of further and higher education at the University of Wolverhampton