Government proposes graduate tax

This could mean graduates paying for their university education through a special tax once they start work.

Often, university-goers take out student loans to fund studies and living costs (see the Should I Pay Off My Student Loan? guide).

However, Business Secretary Vince Cable today said the finer details of exactly how much graduates would pay and what student loans are made available would be subject to a long review.

The independent review of student funding, led by former BP boss Lord Browne, which could pave the way for higher fees, is due to report back to the Government in the autumn.

'More private investment'

Cable told a meeting at London South Bank University today: "We are going to have to develop a model in which the balance of funding for higher education in England combines less public support and more private investment from those who benefit most from it."

Students "almost certainly will have to pay more", he said.

Tuition fees currently stand at £3,225 per year. Under proposals for a new type of tax, graduates would not take out loans to pay tuition fees, but would pay premiums depending on their earnings once they are working.

Speaking after the speech, Cable acknowledged that some graduates are likely to end up paying more money back than they would do under the current fee rate.

But he said it was "unlikely" graduates would be asked to make contributions for life.

'No higher fees'

The University and College Union (UCU) has warned against "rebranding" tuition fees and marketing them as a "graduate tax", saying the public will not accept it.

UCU general secretary Sally Hunt says: "All the polls show the general public will not stomach a rise in university fees. If the Government thinks it can get the public to swallow higher fees as some sort of graduate tax, it is living in a dream world.

"We need a proper debate on how to fund our universities, not an exercise in rebranding. We will judge the plans on what they actually do and whether or not students will be forced to pay more, not how the Government markets them."

The National Union of Students has called for the current system to be scrapped and a new scheme introduced that would see graduates making a contribution depending on how much they benefit financially from their university education.

Shadow education secretary Ed Balls said: "When I was a Treasury adviser I argued for a graduate tax, because it was a fairer system which meant no upfront costs and no assumed debt for students and their families.

"It means graduates pay a contribution to the cost of their university education, but only once they are in work and clearly based on their ability to pay."

Further reading/Key links

Student loans tool: www.studentloanscalculator.co.uk Student Loans MoneySaving guide: Student Loans 2009/10 Student loan help: Should I Pay Off My Student Loan? Student finance guide: Student MoneySaving