Student loans to be means-tested

Student loans would be means-tested under proposals to be unveiled next week by Sir Ron Dearing. His committee of inquiry into higher education, expected to report on Wednesday, will recommend that access to loans is means-tested to ensure enough cash is available for the poorest students.

But all full-time students will have to pay a Pounds 1,200 fee towards tuition, regardless of their means. Loans could be taken out to help cover both living costs and the new fee, which together could total more than Pounds 17,000 for a three-year degree course.

Sir Ron's committee has concluded that the fee, based on 25 per cent of the average cost of courses to the public purse, is the best way to raise the billions of pounds needed to save universities and colleges from a financial crisis.

It will advise the Government against attempting to raise the money quickly by selling the student loan debt to the private sector, a move proposed in a Bill which will receive its second reading on Monday and which could become law next January. Some 20 companies are said to be interested in buying the debt.

The committee believes that under present conditions the private sector will demand incentives which will prove so expensive that little would be gained through the sale. But it is determined to prevent student loans, which have a zero rate of interest in real terms, from becoming a state-funded perk for the middle and upper classes.

It is estimated that the cost to the Treasury of loans would soar to over Pounds 2 billion a year if the third of students who currently do not have loans decided to take them.

It also wants means-testing to ensure there is enough money to supply loans to less well-off students, as well as maintenance grants for the poorest. But it wants all students to pay fees, because it considers these relate directly to the course taken which should lead to higher earnings, rather than the cost of living while on the course. Loans will not be extended to part-time students, whose course fees will stay the same.

Students whose personal and family financial circumstances would disqualify them from either a loan or a maintenance grant should be able to save up to cover their costs, through a new tax-exempt savings plan, the committee is expected to propose.

Employees may be able to invest in new "learning accounts", which could attract contributions from employers.

The committee's recommendations may not impress education funding analysts.

Nick Barr, a member of the London School of Economics team specialising in student loans, said it was a "profoundly regressive idea", because it would force more students to rely on funding from their parents, who might dictate choice of course and institution. A recent Barclays Bank survey found 37 per cent of students already cite parents as their main source of income, while 73 per cent said they received some money from their parents.

Alan Smithers, director of Brunel University's centre for education and employment, said: "All it may mean in practice is that middle-class parents use accountants to fill in the forms to their advantage."