Expert calls for return of grants

Maintenance grants can and should be part of a system of student support designed to widen participation, a leading economist has said.

Nicholas Barr, economics reader at the London School of Economics and former adviser to the Russell Group's controversial report on top-up fees, said reinstating grants and introducing scholarships for the poorest students made sense as part of a comprehensive package of higher education funding reforms.

First the government subsidy of student loans interest rates would have to be scrapped. This would release about £400 million of public money a year to pay for the means-tested grants.

Dr Barr said the subsidy, which pegs interest on student loans repayments to inflation, was "pernicious beyond belief". It meant that £35 of every £100 of taxpayers' money lent by the Student Loans Company "will never be seen again". He said that money would be freed up to help poor students if the subsidy were replaced by an interest rate equal to the government's borrowing rate, currently about 5 per cent.

Such a move might make it possible to sell all student debt to the private sector and release about £1.2 billion a year to build a more robust student-support system. It would also allow student loans to be made large enough to cover a range of fees that could be charged by different institutions.

Grants for poor students would mean that they would need only a very small loan or none at all. But because means-tested grants are a fairly "blunt instrument" for targeting students in genuine hardship, there should also be a range of scholarships available.

A return to grants did not mean accepting the claim of some that higher education is a basic right and should be free, said Dr Barr, whose book, The Welfare State as Piggy Bank , analyses higher education funding issues.

"You might as well say food is a basic right and ought to be free. But these campaigners are reaching towards an important truth - that higher education ought to be free at the point of delivery. That means no upfront charges."

Better financial support alone would not widen participation in higher education, Dr Barr added. It was important to raise the aspirations of school pupils from the age of 12 and to ensure that those from poor backgrounds and minority communities had access to information about higher education and its benefits.

The Welfare State as Piggy Bank: Information, Risk, Uncertainty, and the Role of the State , published by Oxford University Press, price £19.50.