Tuition fees 'could be limited to £6,000'

By Sean Coughlan
BBC News education correspondent

image captionThe raising of tuition fees prompted student protests

Tuition fees in England could be limited to £6,000 per year and remain cost-neutral to universities and the Treasury, a study commissioned by the Million+ group of universities says.

The research examines how a change in the level of tuition fees might work.

It suggests a model where universities receive students' fees of £6,000, plus additional funding from government.

But the Department for Business, Innovation and Skills says this would leave a £2bn shortfall.

Students beginning university this academic year have been the first to pay higher fees of up to £9,000 per year.

But the Million+ group, representing new universities, says that although there continue to be calls for a cut in fee levels, there needs to be a more thorough analysis of how this might be put into practice.

Pam Tatlow, Million+ chief executive, said it was "vital that any alternative proposals add up".

Cost of lending

Million+ has commissioned a study from London Economics, which argues that fees could be cut for students while retaining the same level of funding for universities.

It suggests a model that is a mixture of the previous funding arrangement and the current system - in which students borrow up to £6,000 to be paid in tuition fees, accompanied by a higher level of university subsidy from the government.

The study argues that limiting the amount that students needed to borrow would reduce the Treasury's lending costs - as not all students will pay back their loans in full - and this saving could be used to fund extra places.

Students pay their fees with loans that begin to be repaid when they graduate and start earning more than £21,000 per year.

But there have been concerns about the cost of such non-commercial loans being subsidised by the Treasury.

The Universities Minister David Willetts recently said that the level of loss on loans - the so-called "RAB rate" - is now running at 35%.

This has risen because of lower-than-expected salary levels. The less graduates are earning, the more slowly the loans are repaid and the more likely that they will not be repaid in full.

The study for Million+ suggests that lowering the level of fees and borrowing would be a more efficient and cheaper system for the Treasury - as long as the funding gap to universities was filled by direct grants.

However it would also mean a step back from the more market-driven approach where funding for many university courses is dependent on fees of students choosing to take the subject.

Graduate tax

The study has also looked at the viability of a graduate tax, an idea that had been debated before the introduction of the current system of fees and loans.

This would be a system in which there were no fees and universities were funded by government, but graduates would pay a higher level of taxation.

The London Economics report says that a graduate tax would allow the government to borrow less than at present, although it would mean a change in accountancy rules.

"Questions remain about the sustainability of the coalition's higher-education reforms and their impact on participation, but few details have emerged about the alternatives," says Pam Tatlow of Million+.

"The modelling shows that these two alternatives could be introduced at no additional cost to the Treasury while also preserving the unit of resource in universities."

This was disputed by the Department for Business, Innovation and Skills, which is responsible for universities.

"This report confirms that reducing tuition fees to £6,000 would mean a £2bn shortfall in funding for higher education," said a spokesman for the department.

"That would be bad for students, bad for universities and bad for graduates. The second alternative of a pure graduate tax would also cost more than the current system, while weakening incentives on individual universities to deliver a high-quality academic experience.

"Our reforms in contrast deliver well-funded universities, more student choice and a better academic experience."

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