Ingenious' Tory fee plans hit the poor

The Conservative party's proposals to boost university income by charging students higher rates of interest on their loans are "ingenious", but would hit the poorest students, a respected thinktank said today.

The Higher Education Policy Institute concludes that the party's policy could halt the expansion of student numbers, barring up to 100,000 young people who will have the A-level qualifications necessary for university.

The institute welcomes the "undoubted progress" in Tory thinking on higher education, but casts doubt on the claim by the shadow education minister, Tim Collins, that the proposals would set universities free from government control by making over the student loan debt to them.

Student loan repayments - at a real rate of interest - would provide universities with a steady stream of funding for capital spending, which the Conservatives estimate will be worth ?3bn over the course of the next parliament. Day-to-day funding would be provided through "national scholarships" - cutting out the funding council Hefce, and others, which, at present, distribute the money and control student numbers at every university and higher education college.

"The proposal to transfer the loan book to universities is an ingenious way of guaranteeing a steady stream of income to universities to meet their capital needs," says Bahram Bekhradnia, the institute's director.

He adds: "Despite what is claimed, the policy is in many respects a centralising one. On the one hand the effective abolition of Hefce, and funding universities entirely through a student-based capitation fee, would reduce the level of interference and top-slicing by the centre. On the other hand, more functions would be taken into central government (deciding funding rates for different subjects, for example, and the identification of priority subjects). And there is a clear and explicit statement that the government will set the amount of funding that universities will receive through the national scholarships: there will be no discretion available to universities, as there will be under variable fees."

Hepi backs the plan to remove the interest rate subsidy on student loans, which it argues is an indiscriminate subsidy to rich and poor. But the institute concludes that by continuing to reject tuition fees the Conservatives will benefit richer students at the expense of the poor. Rich students will need to borrow less and so pay less back in interest, while poor students will take longer to repay and end up subsidising higher education. Those who take the longest to repay - women taking career breaks and graduates in low paid professions - will pay the most under Mr Collins' proposals.

Ironically, the Tory plan would also subsidise European Union students to the tune of about ?150m a year by abolishing tuition fees - a fact perhaps overlooked by the eurosceptic wing of the party.

Mr Bekhradnia concludes: "Despite the undoubted progress in Conservative thinking in many respects, therefore, and some quite innovatory aspects of their proposals, in this crucial respect this looks like a short-term solution to a long-term issue. If in the future the government were to decide it cannot afford to fund universities properly from taxation it could not keep putting up interest rates in order to increase the value of the loan book. Although politically difficult, it would be able to allow universities to put up fees."