Debt-free study on DFES's mind

"Debt-free" higher education is emerging as a government ambition as support grows for a return to maintenance grants and the scrapping of tuition fees.

Ministers and officials are considering moves that would mean debt-free graduation within a few years. Graduates might be expected to make a "contribution" that they pay off over time.

Such contributions could be flat-rate so it is possible that some graduates will pay less and some more than the amount of financial support they received as undergraduates.

This is one of the options being considered in the cross-departmental review of student support. The review, by the Department for Education and Skills and the Treasury, began in July. The results will be announced in the New Year.

Education secretary Estelle Morris is to deliver a keynote speech on higher education later this month in which she will outline government plans. Four principles guide the review for any new system:

* It should be simple to run

* It should be more up-front about giving help to poorer students, even including maintenance grants

* It should deal with the perception of debt, particularly among those from poorer backgrounds considering higher education

* It should deliver adequate support for all students.

But sources close to No. 10 say there are disagreements in and between departments about the size and scope of the grants, or bursaries as they are more likely to be known, and at what rate any graduate levy should be set.

Any move to reintroduce grants would cost a significant amount and might be opposed by chancellor Gordon Brown. In 1997, the last year of full grants, they cost the government more than £600 million.

But the Treasury could offset this cost through the new system of resource accounting and budgeting.

This would treat the up-front cost of grants as an investment that would be recouped through graduate contributions. Financial flexibility would be retained over the key short-term period.

Increased support for the poorest students is almost certain to come out of the review but full grants for all, irrespective of parental wealth, are also being given serious consideration.

There is concern in the government that means-testing depending on parental income is unfair. Full grants and fee contributions could be predicated solely on graduates' future earnings. But these would entail an even greater initial outlay.

Also being considered are the length of time for repayments and method of repayment.

Figures of up to 25 years have been mooted, with repayments being added to income tax. The graduate tax premium would be tiny, spread over such a long time. It would be cheap and reliable to collect because it would be done by the Inland Revenue.

Lump sum repayments, while an option for the wealthiest graduates, would be unlikely as any graduate contribution would have to amount to thousands of pounds to satisfy Treasury balance sheets.

Staff are worried that more money for students and abolishing upfront fees could mean less money for universities. There are also concerns that students who had planned to start their studies next year will postpone entry to benefit from the new arrangements.

The sector has been told that the reason the government was able to increase spending on universities and colleges was the decision taken in the previous parliament to introduce tuition fees and abolish maintenance grants.

Higher education minister Margaret Hodge said: "We are very conscious that this is not the time to sort out student funding at the expense of universities - but it is a difficult circle to square."

Roderick Floud, provost of London Guildhall University and president of Universities UK, said: "Any changes to the support system will definitely affect the sector. But let's think it through and let's not, as with the introduction of fees and the abolition of grants, rush into things."

Shadow education secretary Damian Green said: "The sector is right to be sceptical. It could be a case of robbing Peter to pay Paul."