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Tuition fee increase will hit middle-income graduates

Putting tuition fees up to £7,000 will leave middle-income graduates repaying up to £15,000 more tha

There has been concern expressed that raising tuition fees will deter students from applying to university, but new research suggests that a potential cutback on subsidised interest for student loans is where the real danger lies.

A report from the Social Market Foundation (SMF) has found that the proposed rise in tuition fees will leave middle-income graduates with much larger debts than their higher-paid contemporaries, as the increased fees bill will result in the government being forced to withdraw subsidised interest rates for student loans.

If, as expected, Lord Browne's review of university fees and finances (due for publication on October 11) recommends lifting the cap on tuition fees from its current level at £3,290 to £7,000, the SMF research finds that the rise in fees will cost the government an additional £1.3bn a year under the current arrangement of subsidised interest rates on student loans.

As this is obviously unsustainable, the research predicts that interest rate subsidies and loan write-offs would have to be abolished in favour of commercial rates, which would penalise those middle-income graduates who take longer to pay back the entirety of their loan. The SMF estimates that it could leave some graduates paying back up to £15,000 more than their higher-earning counterparts, even if they originally did the same degree at the same university.

In addition to the students and graduates who look likely to suffer under tuition fee increases, this issue is shaping up to be a major political challenge for the coalition. The publication of Lord Browne's review on October 11 will be the first major test of its unity, for as my colleague Samira Shackle pointed out last week, opposing such an increase in the debt burden on students has long been a central policy for the Lib Dems. Their response to the publication of Lord Browne's review will be a key indicator of how things stand within their party, and quite how long we might expect the coalition to hold up in its current form.