Dissertations can be hard especially as you probably haven't done anything like this before. I would think about the mental health first and work out if this is the best time to do the dissertation and if you will be able to do your best with the ongoing issues. If not it may be a good idea to interrupt, get better and then do the dissertation so you can do your best and give yourself the best chance of a good grade.
In terms of the actual topic, your supervisor is right about doing some research first about what barriers students face and what their support needs are. Then you can narrow it down to focus on one barrier or support need and maybe look at the effect of the cuts on it?