Tories: it's sink or swim

Conservative policy will leave unpopular universities struggling to survive. Phil Baty reports

Universities will be left to sink or swim under Conservative Party plans for a market where students hold the purse strings and there is no financial safety net for unpopular institutions.

The Tories this week announced their long-awaited proposals to charge interest rates of up to 8 per cent on student loans to cover the cost of the party's policy to abolish all tuition fees while maintaining investment in higher education.

Under the plans, all teaching funding would be channelled through students, so universities' financial health would depend on their popularity.

Popular institutions would be allowed to expand without limit and the least popular could be left to go to the wall. The Conservatives do not want popular institutions to subsidise unpopular ones.

A capped number of national scholarships, a type of voucher, for students to pay for university would all but end the role of the Higher Education Funding Council for England, which distributes teaching money according to student numbers. The scholarships may not be available to students with "marginal" entry qualifications if demand outstrips supply.

Chris Grayling, shadow higher education minister, said: "It's madness to say to a popular university that they can not admit well-qualified students simply to protect less popular institutions.

"This may encourage change within the sector, but I don't think we are going to see large numbers of universities disappearing."

Vice-chancellors and lecturers' leaders reacted with alarm to the plans and expressed concern at plans for a new £9 billion endowment fund that the Tories would "unashamedly" focus on an elite group of top-rated universities.

Michael Driscoll, vice-chancellor of Middlesex University and chairman of the Campaign for Mainstream Universities, said: "The national scholarship scheme would mean that institutions that have more popular neighbours would face the risk that their neighbour could attract their students and leave them facing financial crises," he said.

"And the endowment money would be focused on a small elite - those most able to raise private income themselves."

Michael Sterling, chair of the Russell Group, said the plans would mean the weak getting weaker, as some top universities would want to expand.

Sally Hunt, general secretary of the Association of University Teachers, said: "Without some degree of control, this free-for-all could prove a disaster." Paul Mackney, her opposite number at lecturers' union Natfhe, said some universities would close.

Key to the Conservative policy is the creation of a private-sector Student Loan Corporation that would charge higher interest rates of about 6.5 per cent on non-means-tested loans of up to £5,000 a year.

The Tories said that the corporation would save a Conservative administration the £1.6 billion a year that it will cost the Government to subsidise the interest-free student loan plus the new loan needed to cover deferred top-up fees of up to £3,000 from 2006.

It would more than cover the £900 million a year Labour expects to raise from top-up fees and the £450 million already raised through the flat-rate tuition fee.

The corporation would receive the student loan book and use this to provide capital and revenue before it began to bring in money from its own lending operations.

Its surpluses, and some additional borrowing, would pay for a one-off £3 billion over five years to help universities improve their teaching infrastructure, and will provide £9 billion over 18 years to boost elite universities' endowment funds. Mr Grayling said the fund would match private income raised mainly by top universities.

Ivor Crewe, president of Universities UK, said: "Universities UK will be paying particular attention to any potential differential impact these proposals might have on institutions."

Charles Clarke, the Education Secretary, challenged the Tories' figures on several counts. He wrote to Tim Collins, Shadow Education Secretary, saying: "I calculate that your sums are short of £1.1 billion if they are to be viable."

Policy points

• Tuition fees abolished
• Grants of £1,500 maintained for poor students (funded at £452 million, as planned by the Government)
• New student loan system, charging commercial rates of interest of about 6.5 per cent, run by a private-sector Student Loan Corporation. Abolition of means-tested loans
• Teaching funding for universities to follow the student, through a national scholarship
• One-off payment of £3 billion for infrastructure over five years - and distributed independently of Government
• £9 billion (over 18-year period) to support a programme of endowment building by universities. The scheme will match-fund money raised by universities
• Offa abolished
• 50 per cent participation target abolished.

Do Conservative sums add up?

The cost of repaying loans will fall by about a third for the average student under plans to abolish fees and charge higher loan rates, the party says.

Despite plans to charge about 6.5 per cent interest on loans, the Tories say that the abolition of top-up fees would cut £9,000 from the average student debt.

Students would repay loans when their income reached £15,000 a year, as under Labour plans.

Although interest would start clocking up at the Tories' higher rate while earnings were under £15,000, graduates would be protected by a 25-year limit on the debt repayment.

According to the party's calculations, an average student would accumulate a £19,300 debt under Labour's plans, taking 14 years to pay off, at a cost of £24,500. Under Tory plans, students would have a debt of £10,500, taking 12 years to pay off at a cost of £17,300.

Tim Collins, Shadow Education Secretary, said that about two-thirds of students would be better off under his plans.

But Nick Barr of the London School of Economics said: "The proposals help students from better-off backgrounds who no longer have to pay fees and harm students from poor backgrounds."

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