Tories plan new loans to replace top-up fees

A Tory government would scrap all university tuition fees and replace them with more expensive student loans, the party confirmed today.

The Conservatives' long-awaited plans for higher education would impose a commercial rate of interest on loans rather than the inflation-linked rates currently charged.

The proposal is aimed at wooing parents and pupils worried by the Government's plans to let universities charge top up fees of £3,000. In a bid to head off criticism, grants would be given to poorer students to protect them from the cost of the new loans.

But the scheme immediately came under fire from Labour, who claimed it would massively increase the debt burden on less well off graduates, particularly women who took career breaks to have children.

It was also unclear whether the average student would actually pay any less under the Tory plan than under top-up fees. Universities-will also want to know whether they lose income overall. Shadow education secretary Tim Collins insisted his plans would be cheaper for students because they will be borrowing much less, even though they will be charged higher interest.

Under the plan, which is based on a New Zealand scheme, an extra £3 billion would be raised over five years, the Tories say.

Power to set loans would be handed from the Treasury to universities and rates would be capped at eight per cent for the first five years. At present, all studentscan take out loans of up to ?3,695 a year, but no real interest rate is charged. They start repaying when they begin earning a salary of more than ?10,000.

Under the Tory proposals an interest rate of about two per cent is envisaged. Party sources claim this would be more than enough to cover the lost income from tuition fees.

But Higher Education Minister Alan Johnson said: "The Tory plans are shocking. They would mean the repayment of student loans would not be based in any way on the ability to pay."