Market-rate loans proposed

September 21, 2001

Ministers took the first steps this week towards a new system of student support that could benefit the hard-up at the expense of their wealthier peers.

Margaret Hodge, the higher education minister, met advisers to consider a range of options that might lead to a system of bursaries or grants covering tuition and maintenance costs for poorer students and those from non-traditional backgrounds.

She was urged to pay close attention to a proposal that the government should switch to charging market rather than subsidised interest rates on student loans from next year - a move that could release up to £400 million a year for grants.

Advisers also believe there needs to be greater equality in the entitlements of part-time, mature and full-time students, and a simplification of the support system.

Baroness Warwick, chief executive of Universities UK, reiterated a call from vice-chancellors for a streamlined approach. UUK would develop a fully costed model for this as part of its submission to the next spending review, she said.

"We envisage some savings from streamlining the current plethora of schemes," she added.

But some government advisers think that simply streamlining the system will save enough to make a real difference. One said: "There is not enough support for those from lower social groups. Since there is a limited pot of money for higher education, it has to be a question of redistribution. The nice thing about charging a market interest rate on loans is that what you are saving is a public subsidy to the middle classes."

Wendy Piatt, research fellow of the Institute for Public Policy Research, which has advocated market interest rates in a joint report with the Council for Industry and Higher Education, said such a move would be strongly opposed by student union leaders.

She said this opposition was "misguided" and showed "there is still a lot of ignorance about the level of public subsidy provided for higher education students, even after the introduction of fees".

The National Union of Students confirmed that it would be opposed to market rates on the grounds that "it is unlikely the government will provide grants that cover the full cost of higher education, which means that working-class students will suffer from the market rates on loans as much as everyone else".

Ms Hodge is expected to ask Department for Education and Skills officials to work out the financial implications of the proposals, with a view to submitting them as part of its bid to the autumn spending review.

But Baroness Warwick warned: "More student support funding must not be allocated at the expense of core investment in our universities. Both universities and their students need extra funds."

Ms Piatt said the only realistic way to meet the needs of institutions and students was to allow universities to charge differential fees, with bursaries to ensure that access was not restricted.

  • Free university tuition is vital to a free society. That will be the message from Liberal Democrats meeting in Bournemouth next week for their annual conference, writes Harriet Swain.

International events allowing, the mood is likely to be upbeat, particularly on higher education issues where the party feels it won votes in the last election. The government's decision to review student finance is seen as a triumph for the party after its drive to highlight growing student debt.

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