Who'll foot the bill for Sir Ron's recipe?

The countdown has begun for publication of Sir Ron Dearing's report into the future of higher education. Speculation is breaking out about how education's Mr Fixit proposes to finance our university system. Tuition fees, individual learning accounts, Tessas, a new student loan scheme, scholarship grants - all are being tossed into the pot and stirred with differing doses of hype.

The word is, however, that Sir Ron and his cumbersome 16-member committee have not yet finalised the section on funding, though they have completed the part on what sort of higher education system we need next century, and ways to deliver it. The tentative date for publication remains 17 July, but the issue of finance is still being chewed over.

Those who wanted a blueprint from the Government's education troubleshooter are likely to be disappointed. The report is expected to list options, with the pros and cons of various solutions, rather than hard recommendations. But there is expected to be a preferred option for how universities should survive in the harsh new world of tight-fisted governments. It is that students should pay for part of the tuition cost of their education, but be allowed to finance that by a loan to be paid off once they graduate and find work. No figure will be mentioned, but most experts believe it would be wrong to set it at more than a couple of hundred pounds a year - at least at first.

The preferred option will please the vice-chancellors' committee and many other experts (though not the National Union of Students) who believe that student contributions to fees on the lines of the Australian model are needed to bringmoney into the system and to iron out inequities between part-time students, who mostly pay fees, and full-timers who don't. It would also mean that Sir Ron's committee had fulfilled its purpose of making more politically palatable a decision that many believe the politicians have got to take eventually.

"Ways have to be found of bringing more money into higher education so that it can be of high quality," says Professor Alan Smithers, of Brunel University. "Providing students are paying out of the benefits they receive from higher education, this seems to be an equitable way of doing it. Indeed, there are advantages to students contributing to the cost of their higher education, because they will look more carefully at what is on offer and make more realistic decisions about their futures."

Whether the Dearing committee will be bolder - and come out in favour of some universities effectively charging higher fees than others - is doubtful, though it will mention it as a way to maintain the international competitiveness of British higher education and allow institutions such as Oxford Brookes, which has a high unit cost, to keep its distinctiveness.

The buzz is that Sir Ron found this committee hard to chair. In fact, it was the first committee of this kind he had chaired. His experience as chairman of the National Lottery operator, Camelot, of the Schools Curriculum Authority and of an inquiry into qualifications for 16- to 19-year-olds, did not involve him having to knock heads together. He had sounding-board groups to consult, but not people he had to carry with him.

A glance at the membership of the Dearing committee shows them to be a disparate bunch (four women, 12 men) from very different worlds and containing some extremely powerful figures. Some members, such as Sir Geoffrey Holland, former permanent secretary of the Department for Education and Science and now vice-chancellor of Exeter University, who chaired the Dearing funding group, are passionate believers in access to higher education. Others, such as Sir Ron Oxburgh, rector of Imperial College, London, and Sir Richard Sykes, chief executive of the pharmaceuticals giant Glaxo-Wellcome, are inevitably concerned with research excellence, equipment and facilities, and mindful that multinational companies are moving research abroad because of poor university infrastructure.

Alongside the preferred solution, the report will list other funding options, including: carrying on as we are, with students paying nothing for tuition (seen as not feasible, because of taxpayers' reluctance to pay more); a graduate tax (thought to be more complicated to introduce than income-contingent loan repayments, and with the added political drawback that it is a tax for life); and tax-free savings accounts, otherwise known as "granny bonds", or a "granny Tessa", to help people with incomes above a means-tested threshold to channel private money into higher education (scholarship grants could be paid to those below the threshold).

Much has been made of the committee's interest in individual learning accounts - in effect a student voucher plan - which have been pushed by David Robertson, professor of public policy at Liverpool John Moores University. He wants each person aged 18 and over to be given an "account" with a "learning bank". Money would be fed into this account by the state, employers and individuals themselves, and students, indeed everyone over 18, could use the cash where they pleased. It is understood that Dearing's funding sub-group rejected this idea as being too complicated for funding Britain's university students, though it is being proposed as a way of financing adults in work who want more education and/or training.

One of the issues exercising members is how to get cash into the universities quickly enough to halt the declining fabric and quality of a system that used to be described as one of the best in the world. If accepted by the Government, new funding arrangements, whereby students pay for part of their tuition via a decent loan repayment, would not yield income to the universities for some years. That is why attention is focusing on the pot of gold identified in a submission to the Dearing committee by Dr Nicholas Barr, senior lecturer in economics at the London School of Economics, and Iain Crawford, a member of the LSE's Centre for Education Research. The pot of gold is student debt (the loans students take out for maintenance), which they reckon could be sold off to the private sector annually, releasing a mouth-watering pounds 1.5bn a year. However, they argue that this amount of money would be realised only if the student loan scheme were revamped.

The present scheme, introduced by Margaret Thatcher, is thought to be insufficiently attractive to the private sector because graduates don't start making repayments until their income reaches a fairly high threshold - around pounds 15,000 a year. Thus the income generated annually to date has been fairly modest. Barr and Crawford, however, have calculated that a reformed scheme, whereby graduates begin to make repayments at a lower income threshold, would sell better and net the pounds 1.5bn a year figure (once a percentage had been deducted for the Exchequer guaranteeing the debt).

There are some technical snags, but the couple are confident that Sir Ron, the arch fixer, could sort them out. One problem is that the Government's Office of National Statistics has said that it would still count student debt as part of the public sector borrowing requirement even if it were sold off privately. Another is that the Treasury would have to guarantee the debt that is sold off (there are precedents for this kind of deal, however).

If Sir Ron can surmount these difficulties, Barr and Crawford believe that a new loan scheme could be up and running by the autumn of next year. There would then be a big scrap for who received the pot of gold. The universities are already pitching for it all. But that may not be realistic, given the pressures on the schools system in England and Wales.

The Barr/Crawford plan would fit neatly into the Government's pledge to replace maintenance support - loans, grants and parental contribution - with an income-contingent loan. But there are understood to be worries on the committee that abolishing grants for hard-up students could deter such people from going to university. The vice-chancellors' committee has, after all, estimated that students will need a loan of pounds 4,475 a year for board and lodging, meaning that they will have to pay back pounds 13,425 at graduation - and that's before any payment for tuition. One way to meet such concerns would be scholarship grants to keep bright working- class students in the system.

Another issue that the committee has had to address is whether higher education can be expanded above its current 32 per cent participation rate. Expansion is favoured by the vice-chancellors' committee and the Confederation of British Industry. The committee is thought to be in favour of expansion, despite evidence from experts, notably the civil servants, that the economic returns to the country are negligible while the returns to individuals are huge. But the committee will be able to give, as another justification for its preferred funding option of students contributing to the cost of their education, the fact that it should enable the system to expand.

What the Government thinks of all this is anybody's guess. The Education Secretary, David Blunkett, has been keeping his powder dry. Baroness Blackstone, the minister in charge of higher education, has been careful not to rule out anything, including making students pay a bit for tuition. And you can be fairly sure that Sir Ron is putting forward some options that will appealn

Who's who on the Dearing committee

Sir Ron Dearing, former mandarin who solved the impasse over school testing and got his own degree through hard work at night school.

Professor John Arbuthnott, vice-chancellor of Strathclyde University.

Baroness Dean of Thornton-le-Fylde, the former Brenda Dean, who led the print union Sogat.

Ms Judith Evans, director of corporate personnel, Sainsbury's.

Sir Ron Garrick, managing director of Weir Group.

Sir Geoffrey Holland, vice-chancellor of Exeter University and former Permanent Secretary at the old Department of Education and Science.

Professor Diana Laurillard, pro-vice-chancellor (technology and development) at the Open University.

Mrs PA Morris, headteacher, the Blue School, Wells.

Sir Ron Oxburgh, rector of Imperial College London.

Dr David Potter, chairman of Psion plc.

Sir George Quigley, chairman of Ulster Bank.

Sir William Stubbs, ex-chief executive of the Inner London Education Authority, ex-chief executive of the further education funding council, now rector of the London Institute.

Sir Richard Sykes, deputy chairman and chief executive of Glaxo-Wellcome.

Professor David Watson, director, Brighton University.

Professor Sir David Weatherall, regius professor of medicine at Oxford.

Professor Adrian Webb, vice chancellor of Glamorgan University.

Mr Simon Wright, education and welfare officer, students' union, University of Wales College of Cardiff.