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Education: The high cost of learning: Vice-chancellors are backing privately funded student loans, says Liz Heron

Students facing an annual 10 per cent drop in their maintenance grants for the next three years and a corresponding increase in maintenance loans as a result of the Budget now have more to think about. Vice-chancellors are urging the Government to force them to repay all their maintenance costs, plus 20 per cent of the average tuition fee.

The Committee of Vice-Chancellors and Principals is backing proposals for financing higher education through a privately financed student loans scheme. The scheme was detailed recently in the National Commission on Education report Learning to Succeed.

Dr Ken Edwards, chairman of the vice-chancellors' committee, said: 'The National Commission's proposals represent a way forward . . . in the way universities are funded. I hope the Government will act on these proposals.'

However, the Government has decided to curb university expansion rather than find new ways to fund growth. In the Budget, John Patten, the Secretary of State for Education, announced that the number of entrants to higher education will be reduced by 3.5 per cent next year and growth in higher education funding limited to 3 per cent over the next three years.

Mr Patten plans to change the funding system to reduce the incentive to universities to take in more students. Tuition fees are being cut by almost half, and the money will be given to the higher education funding councils for distribution.

A spokeswoman for the Department for Education said that the Government was already close to its target of one in three 18-to 19-year- olds in higher education by the year 2000. 'It is a time of consolidation. The Government has concluded that it should continue to reimburse tuition fees, but is accelerating the shift in the balance from grant to loan. We're looking for a 50:50 balance between grant and loan, and after three years we will review where we are.'

The National Commission is calling for grants to be phased out entirely and the loans scheme replaced by a higher education maintenance allowance, set at a level that permits a reasonable standard of living and repayable at a commercial rate of interest. It says students should also pay a flat-rate fee towards 20 per cent of average national tuition costs, which they could borrow through a second loans scheme. Repayments would be made through the tax system once a graduate's or diplomate's earnings reached a specified level.

The loans schemes would be administered by a government agency, such as the existing student loans company, and the government would have to guarantee an agreed level of default - estimated at 20 per cent - through the Public Sector Borrowing Requirement. Banks and other financial institutions would be invited to make a loan to the agency at the market rate of interest plus an agreed margin, such as .5 per cent. They would be allowed to buy and sell bonds 'securitised' against the loan.

The commission estimates that pounds 950m would have to be raised to cover the fee contribution and pounds 2.2bn for maintenance. A student on a three-year course would face a bill of about pounds 12,000, plus interest.

Dr Edwards said that the commission's support for charging tuition fees reflected 'considerable consensus' that students must contribute to the cost of higher education if quality is not to suffer.

Vicky Price, chief economist with the accountancy firm KPMG, said: 'In principle, financial institutions should find this scheme attractive because it would be risk free. But I think the commission has underplayed the cost of administering the scheme.'

The model assumes that repayments 'piggy-backed' on the tax system would be easy to manage. 'But someone has to put your loan repayments into the tax system in the first place and track you when you move from job to job,' she said.

The commission's report has broken a deadlock in discussions between vice-chancellors and ministers over tuition fees. Neither side wanted to be the first to openly advocate charging fees to students.

The Labour Party has been equally fearful of the issue. A paper by Jeff Rooker, MP for Birmingham, Perry Barr, which outlined issues and options involved in the expansion of higher education, was withdrawn from its education green paper. When Mr Rooker pressed for the paper's publication he was dropped from his post as higher education spokesman.

Dr Edwards said there are enough cases of genuine hardship to show that students are falling deeply into debt under the present system. 'I'd much prefer a system in which students are getting into debt, but where the terms under which they repay that debt are clear. The beauty of the system the National Commission advances is that they repay the loan when they can.'

He said that the pressures for expansion will be enormous by 1996, despite the curb in growth. 'The Government is still talking about getting up to a 33 per cent age participation rate (by 1996). That is a bigger increase in student numbers than it might seem, because the size of the cohort goes up and they are also encouraging greater participation from mature students. Now is the time to ensure that we bring in a funding system that will allow us to deliver quality education when the numbers begin to increase again.'