GRADUATES COULD be forced to pay market rates of interest on their student loans under proposals drawn up after a Whitehall dispute over the future of university funding.
The Government was accused of presiding over a "mess" last night after it dropped plans to reintroduce maintenance grants of pounds 3,800 a year for all students weeks after floating the proposals at the Labour Party conference in September. Treasury and Downing Street had become worried by the pounds 3bn annual cost.
Ministers are also getting cold feet on a proposal for students to pay a graduate tax on top of the basic rate of income tax for up to 25 years after they leave university, which they fear could be dubbed "a stealth tax on the middle classes".
A Whitehall source said: " We have gone back to square one. It is a very complicated issue."
The options had been under consideration in a review of student finance, which was due to be completed before the end of the year but will be delayed until 2002. Tony Blair announced the review during the party conference in response to fears that loans and fees dissuaded those from low-income families going to university. The review, by the Department for Education, Downing Street and the Treasury, is looking seriously at charging market rates for student loans to fund the Government's drive to attract students from hard- pressed households to university. …