Canadian fee scheme 'unites worst of US and UK systems'

Canada's federal Government may soon face a plea from its richest and most populous province for the rate of interest on student loans to be more than halved.

Ontario's former premier, Bob Rae, recommended that the province's Government should ask for interest rates on federal loans to be cut from their current bank rate plus 2.5 per cent to bank rate plus 1 per cent. He said this would enable students to afford the higher fees needed to lift the funding blight that has affected the province's universities for years.

In a report commissioned by the Ontario Government, Mr Rae recommends deregulation of fees with added safeguards for low-income students. He also calls for a framework to guide universities' decisions on fee levels "to ensure that future increases are predictable, transparent and affordable". Low-income students would be eligible for a grant up to C$6,000 (£2,500) a year for four years. Universities would have to help low-income students if annual fees exceed C$6,000.

Students fear that university administrators will use deregulation to maximise fee increases. Jesse Greener, Ontario chairperson of the Canadian Federation of Students, said: "What Bob Rae has given us is all of the worst aspects of the US and the UK systems."

Mr Rae called on the provincial Government to give C$1.5 billion by 2007-08 to raise universities to the same funding baseline as in other provinces.

Mary Anne Chambers, Ontario's Minister of Training, Colleges and Universities, said ministers would review the recommendations "thoughtfully, thoroughly and with due regard for the province's fiscal situation".

But it will be difficult for the federal Government to change the loan scheme for Ontario alone. Universities in other parts of Canada all claim chronic underfunding, while students are gearing up to oppose higher fees.

Mr Greener said fee increases would lead to more debt for students and their families. "Bob Rae has argued that 'rich' students need to pay more.

It will come as a surprise to Ontarians that he considers any family with income above C$35,000 to be wealthy."

The report's other recommendations include more opportunities for study overseas, higher-profile marketing to encourage applications from international students, and the creation of an Ontario Learning Board to encourage low-income families to save for higher education.