Universities' response to cuts 'could lead to £40,000 student loans'

Britain's leading universities raised the prospect of a massive hike in student fees yesterday as the only means of maintaining standards in the face of public spending cuts.

Lord Browne, the former BP chief who is heading a government inquiry into student finance, is coming under increasing pressure to recommend a substantial rise to the current cap on tuition fees of £3,225 a year.

In one submission to him yesterday, the Russell Group – which represents 20 of the country's leading higher education research institutions – argued in favour of lifting the cap altogether and allowing universities to set their own fees.

According to student leaders, such a move could leave graduates up to £40,000 in debt and see fees rise to up to £20,000 a year for the most popular courses. However, the Russell Group did acknowledge that any move towards lifting the cap would have to be in stages.

As a first step, it would like to see the cap raised sufficiently to allow universities to make different charges for different courses – arguing that £9,000 a year would cost the Treasury no more in subsidies for disadvantaged students if coupled with a rise in the interest rates for loan repayments.

In a second submission, Universities UK – the umbrella group representing all UK vice-chancellors – called for a cap to be retained but said it could see an "upper limit ... appreciably higher than its current level".

The path for an increase in student fees appears to have been eased with the agreement reached between the Conservatives and Liberal Democrats over fees. Under it, the Liberal Democrats – who had campaigned in favour of scrapping fees within six years – were given the right to abstain on any vote for an increase. But such a move would reduce the number of MPs voting against an increase by 57.

Dr Wendy Piatt, director general of the Russell Group, said: "The most effective and efficient way of protecting the quality of UK higher education would be to allow institutions to exercise discretion over the level of graduate contributions they require."

The Russell Group's proposal immediately led to an outcry from student and lecturers' leaders. Aaron Porter, president-elect of the National Union of Students (NUS), said the call to lift the cap "would lead to many students leaving university with mortgage-style debts of more than £40,000 when times are already tough for graduates and young people".

Sally Hunt, general secretary of the University and College Union, described the move as "the most regressive piece of education policy since the war".

The Russell Group argues that a system of different fees for different courses "will create a fairer system in which the graduates who secure the greatest benefits will make the greatest contribution".

It cites research showing that graduates from Russell Group universities earn 6 per cent more on average than those from the rest of the UK.

Raising extra cash from alumni or industry will not bring in sufficient cash to offset cuts in spending, which already total more than £500m this year, it argues. Further cuts are expected in Chancellor George Osborne's budget next month.

The submission foresees an increase in international students – who can be charged full cost fees of £20,000 a year – but warns: "If UK universities are perceived to be interested in international students purely for the purpose of subsidising an under-funded higher education system, this would irreparably damage their reputation overseas."

Until now, only lone voices such as Oxford Chancellor Lord Patten and former Imperial College London vice-chancellor Sir Richard Sykes have come out in favour of lifting the cap altogether.

Universities UK is more modest in its submission, putting forward a model of fees of £5,000 a year. But it added: "We can envisage a position in future in which this upper limit is appreciably higher than its current level."

Both submissions say that university should remain "free at point of entry" – so that students do not repay loans until they are earning.

Lord Browne is expected to complete his report later this year. Sources close to the inquiry say the rises currently being talked about range from £5,000 to £7,000 a year. The indications are that the Conservatives would have little trouble getting a rise through the Commons if it is recommended by the Browne inquiry.

A survey of Parliamentary candidates during the election by the NUS showed that only 13 Conservatives were prepared to sign a pledge to oppose a rise in fees. Almost all the Liberal Democrats did, but under the coalition deal they have merely been given the right to abstain. One in three Labour candidates opposed a rise.