Theresa May tells next PM to bring back grants for poorer students and slash fees to £7,500

Study warns fear of high debt deters students from poorer backgrounds - but warning it will be 'wolf in sheep’s clothing' leading to funding cuts

Theresa May has said student fees should be slashed to £7,500 a year, under a report for the government which warns the fear of high debt deters teenagers from poorer backgrounds.

The study, ordered by the PM last year, also calls for maintenance grants to be restored for low-income students – after they were controversially axed by George Osborne four years ago.

And it says interest on loans should be scrapped while studies continue, but recommends it be charged at inflation-plus-3-per-cent after graduation.

Chaired by businessman Philip Augar, the panel insists universities must not be left out-of-pocket by the fees cut, which should be “matched with an equivalent increase in grant funding from government”.

Nevertheless, the report will spark fears that funding will be directed away from what Damian Hinds, the education secretary, has called “poor value” degrees in the creative arts.

Given the Tory leadership contest and ongoing turmoil over Brexit, it is also unclear whether the next prime minister will accept the recommendations.

Ms May immediately backed the call to restore maintenance grants as she welcomed the report, saying: “I believe it is time to bring them back.”

But she admitted it would be a matter for her successor, adding: “It will be up to the government to decide, at the upcoming spending review, whether to follow this recommendation.”

That review – due in the autumn – is likely to be postponed if the next prime minister is pursuing a no-deal Brexit, creating the threat of a general election.

The panel warns that the current loans system, including for maintenance and with interest on top, leaves some students graduating “with debt of over £60,000”.

It states: “We judge that a fee cap of £7,500 is fair. It ensures that no student pays more than what could be considered the reasonable cost of their course and allows better targeting of taxpayer investment.”

It notes commentary that “the level of debt is irrelevant” – because debt is written off if graduates do not earn enough – but says it is a “deterrent” nonetheless.

“Perception is reality for many prospective students, particularly those from a disadvantaged background with larger maintenance loans,” the report reads.

It also calls for student loans to be renamed “the Student Contribution System”, arguing it could be “explained better”.

And it calls for further education – “for too long the Cinderella sector” – to be “rebuilt”, after suffering the steepest cuts during the last decade.

The head of Universities UK, which represents institutions, warned ministers against penny-pinching which would “hurt students” and “damage universities”.

“On the face of it the fee-level recommendations may look good for students, but unless the government gives a cast-iron guarantee on full replacement funding, it could prove to be a wolf in sheep’s clothing,” said Alistair Jarvis, its chief executive of Universities UK.

The National Union of Students has also warned that “a cut to fees without a subsidy from central government represents nothing more than the defunding of education”.