Tories plan to scrap tuition fees and raise rates on loans

The Conservatives pledged to scrap all fees for students within a year of taking office yesterday, but warned they would charge higher interest rates on loans.

The Conservatives pledged to scrap all fees for students within a year of taking office yesterday, but warned they would charge higher interest rates on loans.

The pledge formed part of a proposal for a radical shake-up of university finance presented by Tim Collins, the party's education spokesman, which is seen as an attempt to woo the middle classes back to the party for the next election.

Under the package, popular universities, such Oxford and Cambridge, would be allowed to expand, with the lifting of a cap on student numbers. They would receive a grant based on the students they attracted.

Labour and Liberal Democrat MPs and student leaders said the higher interest rates on loans under the plan would discourage students from the poorest homes from going to university.

Professor Nick Barr, from the London School of Economics, recognised as one of the country's top experts on university finance, said the policy was "deeply regressive, benefiting merchant bankers at the expense of teachers and nurses". Vice-chancellors added that some universities could face closure as a result of government cash following those that attracted the most students.

Mr Collins said that the package might lead to more students studying at a university near their home, to avoid higher interest payments.

The Tories would also start a ten-year £18bn matched funding endowment scheme, under which they would match private contributions made to university coffers. Mr Collins said the scheme would "unashamedly" benefit top universities such as those in the Russell Group of the country's 19 top research institutions.

"It will help them compete internationally," he said.

He said all students now facing fees would benefit from the Tory plan, as their debts would be £9,000 lower on leaving university. Even with higher interest rate charges, estimated at 6.5 per cent (the Tories would set a ceiling of 8 per cent), as opposed to pegged to the rate of inflation as at present, they would end up paying less, he said.

Students from poorer homes - those whose parents earn less than £33,000 a year and therefore qualify for fees remission under the Labour plan to allow top-up fees of up to £3,000 a year from 2006 - would also be no worse off. They would keep maintenance grants of £1,500 a year being introduced by the Government.

"Labour have broken their promise and scrapped free higher education," Mr Collins said. "We have kept our promises and will restore free higher education."

He said the Tories would retain Labour proposals under which students would only have to pay back loans when they were earning £15,000 a year and outstanding debts would be written off after 25 years.

The Conservatives say that graduates on average earnings would face a debt of £10,000 under its proposals and pay back £17,300 over 12 years - compared to £19,300 debts under Labour and £24,500 in repayments over 14 years.