Students may be 'paid' monthly

Students could soon receive cash in monthly instalments in an attempt to prevent them falling into debt.

Ministers are contemplating ending the current arrangements under which students are given their loans, tuition-fee contributions, or income contingent loans for those from less privileged backgrounds, at the start of each university term. Students, unused to managing money, often spend such "windfalls" too soon and fall into debt.

The average graduate leaves university owing upwards of £10,000 – £6,000 higher than in 1999.

Hundreds of thousands of students in England and Wales have to take out loans to repay the £1,000 means-tested tuition fees and to meet living expenses.

Labour MP Jonathan Shaw, a member of the Commons education select committee, has raised with ministers the prospect of making it easier for students to manage money.

Their initial reaction was positive and the idea of bringing students into line with much of the workforce by paying them grants through a monthly direct transfer could be included in the new package for students to be announced by the Education Secretary, Estelle Morris, after a lengthy review this autumn.

Mr Shaw said: "Most people are paid weekly or monthly and yet we pay students over a term even though they have the least amount of experience at managing their money. Usually it's a case of the less you are paid, the shorter the period of time the pay cheque covers, but students are somehow an exception to that.

"I think we could break the cyclical nature of debt by stopping paying students one cheque a term and breaking it down over 10 or 11 months."

The issue of student debt and finding better ways of helping young people at university to manage financially was raised by several advisers to the select committee during their investigation into higher education funding.