MPs call for rise in interest rates on student loans

An all-party group of MPs is calling for higher interest rates on student loans.

In a report on post-16 education, published today by the House of Commons' education select committee, MPs say if interest rates are raised from their current levels, which just keep pace with inflation, it could potentially raise ?800m for the higher education sector.

The committee also stated in the report it supported the continuation of means-testing on fees, meaning poorer families would not have to pay them while middle-class parents would be making a "fairer" contribution to the costs of their children's degree, but did not rule out the introduction of top-up fees.

Their report said: "Increasing fees would not disadvantage those students from the poorest backgrounds and could raise significant funds for institutional investment and student support."

It added: "While a good quality education may require financial sacrifices, it is an investment that is usually worth making."

To sweeten the financial pill, the committee propose the earnings level at which graduates have to start paying back loans should be raised from ?10,000 a year to around ?20,000. And the value of loans should be increased to a "level that reflects the realistic costs of pursuing a full-time course of study".

The government abolished grants and introduced fees in 1998 in response to the Dearing Report on higher education funding. It rejected the report's recommendation of a 50/50 combination of non-repayable grants and subsidised loans and its ideas on introducing a graduate tax - whereby fees would be repaid after graduation at a rate dependant on earnings. The graduate tax has been adopted in Scotland.

Today's report declared the government's 1998 reforms, which the prime minister announced last September were to be reviewed, had "failed".

They had not increased the proportion of working-class students in higher education and had not supported poor undergraduates through their degree courses.

And, while the government ruled out allowing universities to charge top-up fees in its 2001 election manifesto, the committee said: "Much heat and little light has so far been shed on the top-up fees debate.

"There is a serious debate to be had on fees policy and the government should not shrink from evaluating the costs and benefits of a differentiated fees strategy."

The report explained that students could pay back their loans at different rates, depending on whether the subjects they studied led to better paid jobs.

An attempt by the committee's only Liberal Democrat member, Paul Holmes, to include in the report a call for the government to consider adopting the Scottish and Welsh systems was defeated by Labour and Conservative MPs. Scottish students do not have to pay tuition fees up front, and in Wales the National Assembly has retained tuition fees and loans, but restored mean-tested grants for poorer students worth up to ?1,500 a year.

The committee also recommended that the education maintenance allowances, under which 16 to 19-year-olds in some parts of England get paid up to ?30 a week to stay at school or college, be extended to cover the first year of university.

Professor Roderick Floud, president of Universities UK, welcomed the simplification of the system, but said he wanted to see mandatory grant support introduced for the poorest students. "This is vital if the financial barriers to access are to be removed," he said.

The Association of University Teachers added its call for the restoration of grants for poor students and the abolition of up-front fees.

Paul Mackney, general secretary of Natfhe, the teaching union for the further and higher education sector, said the proposals would still deter working-class and ethnic minority students. "These proposals won't attract sufficient non-traditional students into HE for the government to reach its targets for wider participation," he said.

He also warned against top-up fees, saying they would lead to a "two-tiered" system.

The government's review of student finance, originally expected in January, is now due to be published in November.