Two-tier fees structure adopted as coalition goes beyond Browne on interest rates

Universities will be able to charge tuition fees of up to £9,000 and higher-earning graduates will face interest rates on their loans of 3 per cent above inflation under proposals unveiled today.

November 3, 2010

In the government’s detailed response to Lord Browne of Madingley’s review of higher education fees and finance, David Willetts, the universities and science minister, announced that from 2012, institutions will be able to charge almost three times the current fees level of £3,290.

However, the coalition is also imposing a lower “threshold” fee level of £6,000, above which universities must meet conditions on improving access to students from poorer backgrounds.

Institutions will have to sign up to agreed benchmarks on widening participation set by the Office for Fair Access, and if they fail to meet them, the regulator will have powers to direct them to spend more on outreach projects or bursaries.

Other proposals being put forward include an acceptance of the Browne Review’s call for a more generous maintenance grant of £3,250 for students from families earning less than £25,000 a year, while minimum bursaries will be withdrawn.

Students from households earning above £25,000 will be entitled to a falling proportion of the grant, and the support will end when family income hits £42,000, less than the £60,000 proposed by Lord Browne. To address this, increased maintenance loans will be available to students from households earning between £42,000 and £60,000.

Lord Browne’s proposals for a real interest rate on loans will also be adopted, but at 3 per cent above inflation, the level will be higher than the 2.2 per cent surcharge suggested by the review. However, the full interest rate will only kick in once graduates earn about £40,000; below that level, the positive interest level will tail off.

Repayments on student loans will only begin once graduates earn £21,000 a year, and those earning slightly above the threshold will be protected from interest payments above inflation, as Lord Browne suggested.

The proposals also adopt the Browne recommendation to extend fee loan support for part-time students – with anyone studying the equivalent of a third of a full-time course eligible.

Meanwhile, any move to penalise graduates for paying off their loans early – a proposal said to be popular with the Liberal Democrats – has not been included in the proposals and is still under review.

Addressing Parliament, Mr Willetts said that ideas on redemption penalties for the early repayment of loans would be subject to consultation, adding that one possibility involved a 5 per cent levy to be charged on additional payments made each year by graduates.

The Lib Dems are believed to be particularly keen on such a mechanism to boost the “progressive” credentials of the new fee regime.

“It is important that those who are on the highest incomes post-graduation are not able unfairly to buy themselves out of this progressive system by paying off their loans early,” Mr Willetts said.

He added that universities charging above £6,000 would have to provide a standard set of information on quality, including data on contact hours and employment outcomes for graduates. He also revealed that while changes to student finance would be made for the 2012-13 academic year, wider reforms to higher education – to be proposed in a White Paper this winter – would be implemented in 2013-14.

Mr Willetts told the Commons that the government’s proposals were a “coherent and progressive” policy.

“This is a good deal for universities and for students,” he said. “The bulk of universities’ money will not come through the block grant, but instead will follow the choices of students.”

However, Gareth Thomas, the Labour shadow universities minister, said the plans were a “tragedy for a whole generation of young people” and represented the greatest “ideological upheaval” for the academy since the Robbins reforms of the 1960s.

“Isn’t it the truth that what motivates today’s announcement is a massive cut in the funding of universities?” Mr Thomas asked. “Not 19 per cent, not 25 per cent and not even 40 per cent, but actually almost an 80 per cent cut in the undergraduate-teaching budget.”

The government hopes to put the proposals for the fee cap to a Commons vote by Christmas, while changes to the interest rate charged will need to be made through primary legislation, probably next year.

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