Students' five-year 'repayment holiday' on loans is abolished

Stricter terms to help fund 10,000 extra university places, Mandelson says

Graduates will no longer be able to take a five-year "repayment holiday" on their student loans under plans to fund 10,000 extra university places, the Government said yesterday.

Students starting degrees last year were offered an optional five-year repayment break after graduation to ease worries about debt and help those trying to buy a first home. But Lord Mandelson, who was given control of higher education in last month's Cabinet reshuffle, said yesterday that the holiday was being cut to two years to help pay for new university places.

Aaron Porter, of the National Union of Students, said the reduction would severely hamper a graduate's chance of getting on the property ladder. "This is a very short-sighted cost-cutting move by the Government at a time when the property market needs as many new buyers as possible," he said.

Martin Freedman, of the Association of Teachers and Lecturers, said he was "deeply unhappy" that the extra places were to be funded by raiding the budgets of other higher education projects, and described the cutting of the repayment holiday as a "cynical move". "[It] will increase the financial pressure on students and seems unlikely to encourage more students from poorer backgrounds to seek a university place," he added.

Martin Lewis, of the advice website moneysavingexpert.com, said the move was likely to hit poorer students. "While a two-year repayment holiday is a good addition, it is no way as good as a five-year break, which allows students to buy a property or sort out their other debts," he added.

"It will be disappointing for many students, but it is interesting that yet again, the Government seems to be chipping away at [the student loan system] piece by piece."

Student leaders also warned that thousands of people would be left disappointed by plans to restrict the extra university places to those studying science and maths-based subjects.

Lord Mandelson confirmed that the Government would fund financial support for 10,000 extra students, including grants and tuition fee loans, but universities will get no extra cash for teaching. He said the additional places would only be for full-time undergraduate entrants to science, technology, engineering and maths courses, as they would give young people the skills they needed for the "jobs of the future".

Applications to universities are up almost 10 per cent this year – a surge in demand fuelled by the recession. The Government had previously capped student numbers, with just 3,000 extra places available for full-time first-year students this year, because of a £200m funding shortfall. With the additional places available only in maths, science and technology – the most expensive courses to run – the costs of supporting extra students must be met be "reprioritising" existing budgets, Lord Mandelson said.

However, the University and College Union (UCU) warned that more than 4,500 higher education jobs were at risk and more than 80,000 students affected. Sally Hunt, the UCU general secretary, said: "Our message to the Government is quite simple – if we want to ensure we are delivering the highest possible quality of education to students, we have to abolish any notion that it can be done on the cheap."

Phil Willis, the Liberal Democrat chairman of the Commons universities committee, acknowledged that the extra places were needed but voiced concern that they would not be backed with additional teaching grants. He said: "Universities are struggling to meet the current demands and courses in science subjects tend to be more expensive than those in other subjects."

Lord Mandelson was also accused of focusing too much on science degrees. Diana Warwick, head of Universities UK, said: "We understand the thinking behind tying the student support to the science, technology, engineering and maths agenda. However, we would be concerned if this were, in future, to have a negative impact on areas such as social sciences, arts and humanities."