Tories spell out alternative to top-up fees

The Conservatives today announced plans to abolish university tuition fees but charge students a higher rate of interest on loans.

The Conservatives today announced plans to abolish university tuition fees but charge students a higher rate of interest on loans.

The shadow education secretary Tim Collins claimed his party's plans would almost halve the debts of young people leaving college.

The Conservatives promised a radical shake-up of the way universities are funded, offering them more freedom to raise their own cash which will be matched by Government funds.

The new form of student loans would be provided by an independent trust, which would charge a commercial rate of interest of about 6.5%.

The Tories said they would cap the interest rate which could be charged at 8%.

Students would start repaying loans once they earned more than £15,000 a year, and debts would be written off after 25 years.

Mr Collins said on the BBC Radio 4 Today programme: "We would remove the very large public subsidy which at the moment goes towards reducing the rate of interest that students pay. That subsidy is worth about £1.7 billion a year by 2009.

"Now we also save the best part of £500 million a year because if you don't have fees the taxpayer doesn't have to pay for fee remission, and that surplus compensates the Treasury for the other big change to the way student loans operate, which is that we transfer the student loan book from the Treasury to the higher education sector.

"The universities would be able to get very substantial new sums, which would be £3 billion over the first five years as an upfront capital injection to deal with the problems they have got with their infrastructure, and £18 billion in endowment funds."

Mr Collins went on: "The amount of (individual) debt is reduced quite sharply - the average graduate under the Government's plans would leave with loan debt of the order of £19,000. Under our plans they leave with about £10,000 worth of debt.

"A graduate on average earnings under Labour's plans takes 14 years to repay, and the interest and principal they have to repay is a little over £24,000. Under our plans they finish paying off their interest two years early and they actually pay £7,000 less."

But Higher Education Minister Alan Johnson criticised the Tory plans.

"They would mean that repayment of student loans would not be based in any way on the ability to pay," he said.

"Those who would be particularly badly hit would be those going into low paid vocations such as voluntary organisations and the church.

"Women would be viciously penalised by having children and bringing up a family.

"Repayment would not be through the tax system and so would be massively unfair and expensive for the universities to administer.

"And most importantly of all universities would simply not get the money they need for raising the quality of their courses."

Liberal Democrat education spokesman Phil Willis also attacked the Tory proposals.

The Harrogate and Knaresborough MP said: "Michael Howard is now showing his true colours. Under his plans only the wealthy should apply to universities.

"Tory policies will see poorer students being priced out of universities by huge hikes in the cost of student loans.

"By introducing commercial interest rates poor students will end up with astronomic levels of debt and many will be put off going to university altogether."