£1bn boost if bill survives

Income to universities

An analysis of the bill by the Higher Education Policy Institute (Hepi) shows that by 2008 the average level of funding received by universities per student will have increased to the level it was a decade ago.

Hepi estimates that universities could generate £1.44 billion from top-up fees, assuming that 85 per cent of students will pay the maximum fee and 15 per cent of the fee income is ploughed back into student support in bursaries.

Charles Clarke, the education secretary, estimated the figure at between Pounds 1 billion and £1.2 billion. Tony Blair said the package "will mean around an extra £1 billion a year for universities, paid directly to them irrespective of the costs the government will bear for new student grants and the cost of deferring all fees".

Universities already generate £1.33 billion in fee income from the existing £1,175 fee. Added to the top-up fee income, the total net income from fees will be £2.8 billion - more than the total funding for full-time undergraduate teaching that institutions receive from the Higher Education Funding Council for England.

Support for students

From 2006, about 30 per cent of students will receive a full grant of Pounds 1,500 a year. A further 10 per cent will receive a partial grant.

Details of the thresholds at which these grants will become payable have yet to be announced. Subsidised loans will be increased to the median level of basic expenditure.

The new maximum loan for 2006-07 for first and second-year students living away from home will increase to £6,170 in London and £4,405 outside London. Those living at home will get £3,415.

For final-year students living away from home, the maximum loan for 2006-07 will increase to £5,620 in London and £4,075 outside London.

Those living at home will be eligible for a £3,085 loan.

These levels were identified by a survey of student income and expenditure by Claire Callender of London South Bank University and David Wilkinson of the Policy Studies Institute. The study also put median expenditure on housing at £1,544 inside London (£1,508 outside London) and the median expenditure on books and other study aids at £1,105 inside London (Pounds 645 outside London).

Universities will also provide students on courses charging the full top-up fee with bursaries worth at least £300 a year from fee income. Taking bursaries and the higher education grant together, some 35 per cent of students - 400,000 people - should get an upfront payment of £2,000 a year, according to Hepi. Any fee waiver would be on top of this. The fee waiver available to students from low-income families could very quickly be rolled into an up-front grant. At present, the first £1,200 of the fee is paid for 40 per cent of students and some part of the first £1,200 for another 20 per cent.

Hepi estimates that changing the fee waiver to an upfront payment would provide an extra £337 million a year for student support. The state could then afford to provide 25 per cent of students with £3,000 a year and 20 per cent with £1,000.

The average student should expect to repay their loan in about 13 years.

After 25 years, outstanding loans will be written off.

Cost to the state

Hepi estimates that the cost to the state will be up to £1.5 billion, most of which will arise from the cost of deferring the payment of tuition fees until after graduation. The figure includes the cost of the increase in loan available for all students, put at £65 million, and the cost of writing off student debts after 25 years, put at £35 million.

The government says that the exact cost of implementing the bill's proposals will depend on a number of factors, including the number of students entering higher education from autumn 2006; the level of fee charged for each course by each institution; how the fee level will change over time; and the number of students taking out loans to cover fees.

The government estimates put the annual running cost of implementing top-up fees - excluding the initial cost of deferring tuition- fee payment - at up to £445 million. This figure is based on 75 per cent of universities charging the highest £3,000 level of fee and 25 per cent charging the standard fee, currently £1,175. It also assumes that 90 per cent of students would take out a loan to cover top-up fees, which they would not repay until after graduation.

Adding the cost to the government of 90 per cent of students taking out a loan to cover standard fees - some £190 million - takes this figure to Pounds 635 million.