Universities say students may face earlier loan payback

Student library The Russell Group says some courses are making losses

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Graduates could pay higher interest rates on their student loans and pay them back earlier to help avert a funding crisis, a report says.

The Russell Group of top universities says it faces a £1.1bn black-hole in its finances by 2012-13.

The claims are in its submission to England's official review of student finance and fees.

The National Union of Students said students already paid "more than their fair share".

President-elect Aaron Porter said: "These are elite universities that are simply turning around to students saying they have to foot the bill for cuts in government funding - but they should have anticipated this and thought about their provision".

The Russell Group represents the 20 most research-intensive universities in the UK, and includes the likes of Oxford, Cambridge and University College London.

It says that without extra income its members will be forced to make significant cut-backs.

The group has suggested the £900m-worth of cuts planned by the Labour government for the next three years would bring the UK's higher education sector to its knees.

But it kept its submission to the independent review of higher education funding and student finance secret until now.

The review will report to the government in the autumn.

Under-investment

Although this submission stops short of suggesting higher tuition fees for UK students, it appears to indicate that other solutions may not be fully workable.

It also argues that one way to make the student finance system more sustainable would be to charge students a real rate of interest on their loans.

This could be linked to the cost of government's overall cost of borrowing. It also suggests the threshold at which students start paying loans back could be lowered from the present £15,000.

The Russell Group says: "The lack of a real rate of interest on student loans" is a "subsidy which imposes high costs on the Government, and which exceeds the requirements of ensuring fair access to higher education".

It is set to make a number of submissions to the review in the next few weeks.

The group says variable tuition fees have enabled top universities to maintain high standards and widen access.

Future cuts

This funding, together with the package of loans covering the fees - now at £3,225 a year - has allowed many more students to attend universities, it says.

It adds that much of the increased funding has been used by universities to compensate for a backlog of under-investment.

But it also claims the financial sustainability of the sector as a whole is severely at risk, with universities facing rising cost pressures, particularly related to salaries and pensions.

It says research intensive universities face particular pressures because of low staff-student ratios and high equipment and resource costs.

One Russell Group university loses an estimated £3,620 per chemistry student per year, it adds.

And figures like this lead the group to predict top universities will be £1.1bn in the red by 2012-13.

Russell Group director general Wendy Piatt said: "With funding reductions and the prospect of future cuts to manage, without clear means of increasing their income, meeting these challenges begins to look like an impossible task.

"There is now a real risk that we could lose academics who have been responsible for discoveries that have changed the lives of millions of people for the better."

Knowledge economy

The report says there are only three ways in which universities could reduce their annual deficits.

These are reducing costs by cutting staff; increasing income by recruiting more overseas students; or increasing income through domestic tuition fees.

It also suggests that graduates could pay back their loans earlier and at a higher interest rate.

Under the current system, students begin to pay back their loans when they start earning £15,000 a year or more, and at a low interest rate.

The public costs of funding the student finance system could be reduced by lowering the threshold at which graduates begin paying back loans, it adds.

A spokesman for the review of fees said it would consider the submission along with all the others. The Department for Business, Innovation and Skills said it would respond to the review when it reported in full.

University and College Union general secretary Sally Hunt said: "We desperately need to overhaul how universities are funded and move away from the idea that the current review of student funding is merely a question of how much student fees go up by."

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