Only the introduction of tuition fees can solve the university funding crisis

The proposals on the funding of higher education unveiled yesterday by Tim Collins, the shadow Education Secretary, have been designed to please everyone at once. According to the Conservatives, under their plans students would come out of the higher education system unburdened by colossal debts, universities would enjoy a fresh source of revenue and the general public would not be asked to pay more taxes to bail out an over-stretched higher education sector. In theory, everyone would be a winner.

The proposals on the funding of higher education unveiled yesterday by Tim Collins, the shadow Education Secretary, have been designed to please everyone at once. According to the Conservatives, under their plans students would come out of the higher education system unburdened by colossal debts, universities would enjoy a fresh source of revenue and the general public would not be asked to pay more taxes to bail out an over-stretched higher education sector. In theory, everyone would be a winner.

Unfortunately, Mr Collins' plan, which is based around the abolition of tuition fees and raising the interest rate on student loans, does not stand up to close scrutiny. It would leave the basic problem of higher education funding unresolved. While few students would lament the end of tuition fees, they might well find higher loan costs a comparable burden.

At the moment, students can take out special loans, underwritten by the Government, to cover their living costs. These were introduced to help compensate for the phasing out of the student grant and are separate from the loans students can take out to cover the cost of tuition fees. These special loans accrue interest only at the rate of inflation, which makes them a cheap form of borrowing. The Tory plan to charge a commercial rate of interest on these loans would substantially increase the costs of repayment. It is true that, in the absence of tuition fees, the average student would leave university with smaller debts overall, but it is important to remember that poorer students tend to take a greater number of student loans. Those from more prosperous backgrounds often get financial help from their parents to meet their living costs. No doubt this trend would increase if the interest rate on loans went up. The result would be a system that effectively penalised poorer students.

Universities would also not be as well served as at first appears. The Tory proposals would place the administration of the student loans system in the hands of the universities, which would constitute a significant financial burden in itself. And the calculation that this method of funding would raise £20bn over the next 20 years for the universities is over optimistic, given that students would be discouraged from taking out this form of finance by the higher interest rate.

By contrast, the Government's variable university fees Bill, which was squeezed through the Commons with the slimmest of majorities, would guarantee universities a reliable stream of income. And by permitting different institutions to charge different fees, it would enable students to make a judgement about the value of an academic course. The Tories' proposals would allow none of these things.

Despite the myopia of the Liberal Democrats and the Conservatives on this issue, tuition fees are a progressive measure. Although unpopular in many households, they are a crucial step in setting universities on a sound financial footing, and breaking their dependence on the largesse of central government, which has been so damaging over the years.

And it is fundamentally right that those who reap the financial benefits of a university education should pay for it. Those who claim that the prospect of substantial debts puts poorer students off going to university too often disregard the fact that debts will only be paid off after graduation, and when someone starts earning more than a certain amount. They also disregard the fact that unless universities stabilise their finances, it will be future students who pay the highest price.

There is a justified debate about where to set the limits on tuition fees, and what proportion of their cost should fall on the state and the student, but the principle is attracting more support. Mr Collins' proposals are an imaginative attempt to square the circle, but there is nothing in them to suggest that they constitute any practical alternative to allowing the universities of the land to charge fees for their services.