‘Double fees and let banks provide loans’

Report argues that move would increase sector’s reservoir of private funds. Melanie Newman reports

October 26, 2009

Universities should be allowed to charge tuition fees of up to £7,125, with students taking out private loans to cover the extra costs, according to a report from a former chief executive of the Council for Industry and Higher Education (CIHE).

In a report due out tomorrow, Richard Brown argues that the additional loans that students would need to cover the increased cost of tuition fees should come from banks, not from the Government.

Students currently pay £3,125 a year in tuition fees. They receive a government-subsidised loan to cover the upfront cost of fees, which they repay after graduating at what is in effect a zero per cent interest rate. Under existing loan arrangements, if fees were increased there would be a cost to the Government as it has to pay interest on money it borrows to pay the loans.

Mr Brown argues that getting banks to provide loans to meet the extra costs of a higher tuition fee would boost the flow of private cash to the sector without increasing costs to the Treasury.

His report, Invest for Greatness in Higher Education: Some Funding Ideas, says that universities could use 10 per cent of their supplementary fee income as an “underwriting fund” that would limit banks’ exposure to the risk of student defaults. This would allow them to lend at interest rates similar to those available on mortgage loans.

Repayment to banks would begin once a student’s income exceeds a threshold, and employers could collect this in the same way as they collect cash repaid to the Student Loans Company, Mr Brown suggests.

To avoid students from low-income families being disadvantaged, institutions that wished to charge supplementary fees would be barred from excluding any applicant on the basis of ability to pay. Some of the money raised through the scheme, which the report estimates could reach £1.2 billion, would also be used to increase funding for access schemes.

The report says publicly funded loans should remain available for fees up to £3,125. But interest rates for these should be raised to match the rate the Government pays on capital it has borrowed to fund the loans. The paper also suggests that graduates should begin repaying the state-subsidised loans as soon as they earn their degrees, irrespective of income, at a minimum rate equal to the interest being charged.

The National Union of Students criticised the report for suggesting that the sector faced a simple choice between charging students more or seeing universities fall behind those in other countries in terms of investment.

Wes Streeting, president of the NUS, believes that a better way to raise more funds is a graduate tax. This would give universities twice the amount of funding they currently receive from fees while allowing children of poor families to go to university without fear of debt, he said.

“These proposals would make a university education free at the point of use,” he said, “with graduates giving back to the system according to how much they earn – a system that would ensure that those who benefit most from higher education contribute the most.”


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