Tories plan student loan shake-up

Students would start repaying their student loans once they were earning £20,000 a year - twice the current threshold - under Conservative plans for higher education.

Undergraduates' loan repayments would attract tax relief, which would be fixed for ten years. Relief could be worth up to £700 a year for some. The Conservatives say that no student would be significantly worse off.

Conservative concessions on the repayment threshold and tax relief come at a price for graduates. The party wants to impose a market rate of interest on loan repayments in place of the present rate tied to inflation.

The Conservatives released more details of their plans to endow universities with lump sums of about £1 billion each. The party envisages that all universities could be endowed within ten years. An average £1 billion endowment would generate an annual income of about £70 million, they say.

Money to start the endowments would come from selling what remains of existing student loan debt. The party says there is about £5.5 billion in loan debt that could be sold to the private sector. The value of any sale would probably be about £3.5 billion because discounts would be necessary given the neutral interest rate and high likelihood of bad debt.

Thereafter annual sales of student loan debt, of about £1.8 billion, would raise an estimated £1.6 billion a year to be ploughed into endowments. Other significant sums would be raised as a future Conservative government sold telecommunications frequencies and other assets.

Shadow education secretary Theresa May said that universities would have to bid for endowment funds and that she was keen for new universities to join the research elite in the process from the outset.

But Ms May made it clear that any university seeking an endowment would have to guarantee that it would not increase tuition fees above the prescribed level.