Ministers consider higher interest rate on student loans

A higher education funding review is likely to see a shake-up in the way interest is charged on student loans.

The review, by Lord Browne, suggested a variable interest rate on student loans was a favoured option.

Currently, students pay back their loans when they earn over £15,000 a year, at a low interest rate.

The review is expected to recommend removing the tuition fee cap, currently set at £3,290, and allowing the market to decide the cost of a degree.

Ministers have been considering a system of tiered interest rates – linked to graduates’ earnings.

However, the Liberal Democrat MPs within the Coalition Government are against the rise in fees and a deal has therefore yet to be reached.

In their election manifesto earlier this year, the Liberal Democrats campaigned to scrap tuition fees.

The National Union of Students, meanwhile, said yesterday: “ It would be a complete betrayal of the electorate to abandon this flagship promise.”

In related news, the Russell Group, which represents 20 elite, research-intensive universities, recently suggested that graduates may have to start paying back their student loans earlier and at a higher rate of interest, in order to prevent a major funding crisis.

The group warned in May that the financial sustainability of the UK’s top universities was “severely at risk” under the current system.