No fees, more loans - and lots of interest at election time

The Conservatives and the government began a war of figures yesterday as ministers attempted to show that the Tory higher education plans do not add up.

The problem for the government is that, at election time, the Conservatives will be able to parade an easy to understand no-tuition-fees policy against more complex Labour sums demonstrating that commercial interest rates will ultimately see many graduates paying more.

Under a Conservative government, students would not have to pay fees for tuition; under Labour a big majority of universities would charge £3,000 a year.

The Tories would also allow all students to borrow up to £5,000 a year - over £1,000 more than the current maximum under the government's means tested scheme. Grants would be retained for the poorest students, but would be capped at £1,500, compared with £2,700 from 2006 under Labour, topped up to at least £3,000 with a university bursary.

On graduation, the Tories say, average student debt under them would total £10,500, compared with the £19,300 they claim would be owed under Labour's fees scheme (Labour's own estimates assume an average £15,000 debt). Under both schemes, graduates would have to repay loans only when they earned at least £15,000 a year. The Conservatives say an average graduate takes 12 years to repay loans, bringing the total of interest and principal repaid over the lifetime of a loan to £17,300. Under Labour's scheme, the Tories claim, repayments would total £24,500.

The calculation, however, fails to take into account the extra grant available under Labour, and does not allow for career breaks, during which real rates of interest would continue to accrue. The Conservatives have not built in funds to ease the effect of the scheme on the lower paid either.

High earners would also have the capacity to pay back loans faster than required to save money.

The Conservatives pledge to match universities' income, which is drawn from state funding and fees, and say they will bring in a planned £900m extra for undergraduate teaching from 2006-7, two years earlier than Labour proposes.

The total package of £1.8bn a year is the same as Labour promises, and would be topped up with a £3bn capital fund and £9bn available to match universities' own fundraising and encourage the building of endowments.

While the capital cash would be welcomed, universities with few donors would miss out on endowment cash, and the planned voucher scheme could lead to a scramble for students if overall numbers are not allowed to expand.