Student loan rates 'may increase'

Graduates should be made to pay higher interest rates on student loans to help avoid a university funding crisis, a report says.

The Russell Group of top universities has predicted that within the next 2-3 years they face a £1.1bn black-hole in their finances, adding that the financial sustainability of the UK's leading universities is "severely at risk".

The claims were highlighted in the group's submission to England's official review of student finance and fees, which will report to the government in the autumn.

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

The group has warned that its members will be forced to make significant cut-backs without extra income, suggesting that the 3 year £900m cuts planned by Labour would have serious implications for the UK's higher education sector.

The submission does not go as far as suggesting higher tuition fees for UK students, however it does indicate that alternative solutions may not be fully plausible.

It also points out that one option of making the student finance system more sustainable would be to apply a real rate of interest to student loans, which could be linked to the cost of government's overall cost of borrowing.

It also suggested that the threshold that determines when students should begin paying back their loans should be lowered from the current £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".

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."

Written by Sam Gooch