Universities told to make tuition fees deal with banks

New tuition fees funding ideas on the table at industry conference

Universities will today be urged to strike a deal with high street banks to stop another rise in tuition fees for all students.

Some university leaders want tuition fees to rise from the current cap of £3,225 a year in England to more than £7,000. But the government may not be able to afford this because it subsidises loans that allow students to pay fees upfront and then repay the loan after graduation.

Those universities that want to charge higher fees should make a pact with high street banks, Richard Brown, former chief executive of the Council for Industry and Higher Education (CIHE), will tell university leaders at a conference in London.

Under the pact, banks would lend students any extra money needed to pay higher fees at low interest.

In return, universities would provide a fund that would limit the banks' exposure to the risk of students defaulting on their loans.

Universities could have an extra £1.2bn a year from the higher fees, while graduates would be able to pay back their loans from the banks depending on how much they earn – as they do with fees now.

Brown told the Guardian he had discussed the proposal with the "major" high street banks who were "receptive" to the idea. He said they had agreed not to vary interest rates according to a student's family credit history.

"The banks have said they would not charge different interest rates to different students," he said. Universities would have to justify higher fees by, for example, making the case that their graduates would earn higher salaries than those from other universities.

Speaking at the CIHE annual conference, Brown will tell university leaders: "The state of public finances may not allow a simple raising of the cap on student fees. Simply maintaining current levels of funding or accepting reductions would require the sector to reduce in size, lower its quality and allow other nations to seize a competitive advantage that we may be unable to retrieve in the future, with potentially serious consequences for the UK economy and society. Not only is our higher education system less well funded compared with our competitors, we are also losing the international battle to develop the brainpower that will power our economy in the future."

Wes Streeting, president of the National Union of Students, said: "We are not faced with a simple choice between charging students even higher fees or allowing our universities to fall behind those of other countries."

NUS has called for a graduate tax. Under its plans, tuition fees would be abolished. Instead, graduates would contribute to a national trust between 0.3% and 2.5% of their salaries each month, over 20 years.

The contributions would depend on a graduate's salary. A graduate on £40,000 would pay £125 a month, while someone on £16,000 would pay £5.

Streeting said his proposals would give universities double the amount of funding they currently receive from fees, while allowing the children of poorer families to go to university without the fear of debt.

"These proposals would make a university education free at the point of use, with graduates giving back to the system according to how much they earn – a system which would ensure that those who benefit most from higher education contribute the most," Streeting said.

"Students are already graduating with over £20,000 of debt, and we owe it to them and their families to consider alternatives to the disastrous current system of fees."