Effectively interest-free student loans may no longer be available
The government is considering asking all but the poorest graduates in England to pay a “real” rate of interest on their student loans.
Currently, the loans are charged at what amounts to a zero rate.
However, the earnings threshold at which graduates have to start repaying the money may be raised from the current figure of £15,000.
The move comes ahead of a higher education funding review likely to recommend removing the tuition fee cap.
The review, by former BP chief Lord Browne, is due to publish its recommendations on Tuesday.
But as all the Liberal Democrat MPs in the coalition have signed a pledge to oppose a rise in fees, ministers have been trying to reach a compromise that will be progressive enough to secure their backing.
The two sides have not yet reached a deal.
Ministers have been considering a system of tiered interest rates, tied to graduates’ earnings.
This may have meant higher rates for higher-earning graduates.
But the BBC understands ministers are now moving towards charging most graduates a flat, real rate of interest on their loans, with only graduates on low salaries enjoying a zero rate of interest.
The threshold for paying it back would be raised from the current level of £15,000.
Analysis
The row over university funding is now not a financial problem for universities but a political problem for the coalition.
All sides in government accept tuition fees are going to have to go up and graduates will have to pay an awful lot more for their degrees.
The problem is coming up with a suitably large “progressive” fig leaf to cover Lib Dem embarrassment for promising at the last election to oppose higher fees.
So far, despite weeks of haggling and different proposals, it has proved impossible to reach a deal between the two sides.
However the favoured idea now is to charge all but the poorest graduates a real rate of interest on their student loans.
As one government source put put it: “Our aim is to help the least well off… not to clobber the better off.”
Will that be sufficient to get the Lib Dems on board? Probably not. So stand by for more arguing and leaks over university funding.
There would also be pressure on universities to provide more bursaries.
One government source said: “Our aim is to help the least well off, not to clobber the better off.”
Liberal Democrat MP Stephen Williams told the BBC’s Today programme that he was waiting for the outcome of talks between Lib Dem Business Secretary Vince Cable and Universities Minister David Willetts, a Conservative, before commenting on whether the proposal would appease party members.
He said the Liberal Democrats had “not necessarily” moved away from their pre-election pledge, and there was concern in the party about a market-based system developing, where different universities were able to charge different fees.
He said that risked skewing choices made by young people.
“I’m really worried and I know a lot of my colleagues are worried that we may end up with a regime that makes people take choices they’re not necessarily academically suited for.”
Lord Browne’s review is expected to recommend scrapping the upper limit on tuition fees in England.
But government support would only be guaranteed up to £7,000 per year – which is likely to make this the upper fee for most degree courses.
This would mean more than doubling the current tuition fee of £3,290.
Backbench Lib Dem MP Greg Mulholland warned over the weekend that he and others would oppose any attempt to raise fees.
“Many of us, certainly in the Liberal Democrats and I suspect probably across the House to some extent… will oppose any attempt to raise fees in the way that has been leaked from the Browne report.”
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