Tory plans for ‘emergency fund’

Early repayment of student loans mooted to finance university expansion. Hannah Fearn reports

October 5, 2009

The Conservative Party has outlined radical plans to raise a £300 million “emergency fund” to support university expansion by encouraging graduates to pay back their loans early.

Under the plan, graduates would receive a 10 per cent discount on early repayments.

Any graduate who made a single repayment above £500 or chose to pay off their loan in full within the next three years would be eligible for the discount.

The move aims to quickly raise the £300 million needed to fund 10,000 additional university places next autumn to prevent a repeat of this year’s admissions scramble.

David Willetts, Shadow Universities Secretary, said the boom in university applications triggered by the tough employment situation would be even more pronounced next year.

“The Government’s failure to create a fair and affordable system means that thousands of young people with good exam results have been unable to get the education they need,” he said. “With one in six young people not in work, education or training, it is vital that we prevent a similar crisis next year.”

Mr Willetts said that if just 10 per cent of graduates took advantage of the offer, the 10,000 extra places could be funded.

The proposal was outlined in July by John Craven, vice-chancellor of the University of Portsmouth and former chair of University Alliance, the industry body. Discounts for early repayment have already been trialled in Australia and New Zealand.

Libby Aston, director of University Alliance, said: “There will be some concerns about a discount that benefits those who can afford to pay higher contributions immediately after graduation, but this is a temporary policy that will allow many thousands more students from all backgrounds to go to university without upfront costs and with generous student support.”

The higher education sector welcomed the proposals, outlined ahead of the Conservative Party conference in Manchester this week.

The 1994 Group of research-intensive universities labelled the move “bold and creative”, while Steve Smith, president of Universities UK, said the plan recognised “that expansion of higher education must be fully funded if quality and opportunity are to be maintained”.

He added: “Increased student numbers must not come at the price of reduced social mobility. If the scheme were to be implemented, I hope that the resources generated by those fortunate enough to be able to repay loans in a lump sum would help many more people from less well-off backgrounds to transform their lives by benefiting from university education.”

Wes Streeting, president of the National Union of Students, said he would be concerned if the approach “set a precedent whereby those from more affluent backgrounds enjoyed preferential repayment conditions on loan debt”.

However, he added: “Given that those from the poorest backgrounds are most likely to lose out without an urgent expansion of places, this is an acceptable short-term fix.”

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