Graduates face a lifetime of debt under latest Coalition proposal 10 September 2010
Laura Clark (about the author)

Graduates could be forced to pay a fixed proportion of their income to their universities for years after they have left.

The idea is part of Coalition plans to reform student loans and secure long-term funding for higher education. Universities Minister David Willetts also gave his clearest hint yet that students face higher tuition charges – perhaps as early as 2012.

Under the terms of the proposal, alumni would no longer have a finite student debt to repay, but would be bound over to pay a share of their earnings.

Highly-paid graduates could eventually pay more than the cost of their tuition and maintenance, while lower earners could pay less.

But critics of the idea warned it would alarm parents and deter prospective students seeking to attend university from autumn 2012. Institutions would rake in more than double the £9,870 they currently receive in fees from students on three-year degree courses.

Hike in fees required to maintain standards

Coalition ministers are desperate to hammer out a deal on university finance to avoid damaging splits.

Prior to the election, 55 out of 57 Lib Dem MPs signed a pledge to vote against any increase in tuition fees. Mr Willetts insisted yesterday the Coalition was still examining all available options.

But he warned students faced a stark choice between paying more to go to university or seeing places cut and academic standards ‘jeopardised’.

In a keynote speech to the Universities UK annual conference in Cranfield, Bedfordshire, Mr Willetts said graduates should expect to pay more to protect current higher education standards.

‘I do believe that it is better for the younger generation to have the chance of going to university and then pay for it out of the higher earnings they achieve later on, rather than experiencing poorer quality or being deprived of the opportunity altogether,’ he told vice-chancellors. ‘This has to make sense for young people.

‘What would not make sense would be to fail to increase the contribution from graduates, with the result that then we jeopardised the student experience or ended up having to make big cuts in student numbers. 'That would be to let our young people down.’

However, Steven Jackson debt expert at beatmydebt.com warned that graduates already face a debt burden of nearly £25,000. "Many graduates are already facing a lifetime of debt because of the cost of university. Adding to this will only make matters worse for our young people and we will start to see far higher insolvency rates" he said.

Graduate tax?

He went on to suggest ‘a graduate contribution that is progressive and fair, not necessarily a full-blown tax’.

‘A full-blown tax, which is not what the coalition is proposing, in its extreme form, would mean that because you’ve been to university, you pay a percentage of income for the rest of your working life.

'The risk is that people who end up in high-paid jobs in medicine or in business would have a tax burden that meant they looked, for example, at studying abroad.’

However officials investigating the possibility of making graduates contribute 1 per cent of their income for the rest of their lives claim it could not be called a ‘tax’ because it would be paid direct to universities, and not to the Treasury.

An independent inquiry into student fees will report next month. It is expected to recommend allowing the cap on tuition fees to rise to £7,000 a year.

New funding regime in place by Sept 2012

But ministers are already looking beyond the review – being led by ex-BP boss Lord Browne – to seek a compromise that can succeed in winning Parliamentary approval. Mr Willetts revealed that a new student funding regime could be in place by September 2012.

Ministers are investigating a ‘twin-track’ system that would involve implementing changes to university finance earlier than wider changes to higher education expected to flow from Browne’s review.

The earliest these changes to the fees regime could be introduced would be autumn 2012.
Enlarge Aaron Porter, the president of the National Union of Students, said: ‘In suggesting that students must pick between substandard universities, a lack of opportunity or paying for the privilege shows just how dysfunctional the current system is.’

He welcomed proposals for a graduate contribution. Universities meanwhile are bracing themselves for spending cuts of up to 35 per cent.