Two-tier student loans: Those earning under £15,000 won't pay interest ... those on more will

By Tim Shipman
Last updated at 1:56 PM on 11th October 2010

Remember this? Nick Clegg with his pledge during the election campaign

Students are set to be hit with a two-tier loans system that will see better off graduates facing higher interest rates.

Former BP chairman Lord Browne will tomorrow unveil proposals to shake up university funding.

His plan would remove the current £3,290 a year cap on tuition fees  -  sending the cost of top university courses soaring to £12,000 a year.

But he has trashed Liberal Democrat plans to pay for the increase using a graduate tax, because that would mean 'punitive' costs for high achievers and foreign students could also dodge the costs.

The Mail has learned that Lord Browne will call for an end to zero per cent interest student loans to make graduates pay their way.

Senior government sources say that ministers will accept his recommendations.

Under the scheme, graduates earning under£15,000 a year will continue to pay no interest.

But those earning more will pay a ' single positive interest rate'. In a move that could provoke a coalition split, the Tories are insisting the single flat rate of interest remains unchanged right up the income scale in order to avoid 'penalising success'.

The Lib Dems would prefer a variable rate that hits those on highest incomes hardest.

A senior figure who has read the report said: 'Lord Browne is recommending that we have an increase in fees that could be paid up front or with a graduate contribution
afterwards that is fair and progressive.'

'He will say it's good for Britain that people from poor backgrounds should apply for university and shouldn't be put off if they are from a low income family or only get a low paid job afterwards.

'It is most unlikely there will be variable rates. We won't have anything that is seen as a penal rate. We're not going to have a system that penalises success.'

That statement is designed to head off claims a two-tier interest rate would amount to a 'graduate tax by the back door'.

Former BP chairman Lord Browne will unveil proposals to shake up university funding

Experts expect the cost of most university courses to rise to around £7,000, which prestigious courses at Oxford and Cambridge costing around £12,000.

Doctors groups are warning that some medical courses will cost upwards of £100,000 once the cost of living is factored in.

The Browne Report is embarrassing for Lib Dem leader Nick Clegg and Business Secretary Vince Cable, whose department is overseeing the changes.

Along with all their MPs, the two signed a pledge to 'vote against any increase in fees in the next Parliament'. And Mr Clegg was photographed during the election campaign drumming up votes among students holding up a poster pledging to oppose any rise in tuition fees.

Mr Cable has sent a letter to all coalition MPs saying the agreed solution will provide 'fair access for all'. He promised it would have a 'progressive funding structure'.

Lib Dem whips yesterday issued instructions to their MPs, telling them not to comment. But by then a rebellion was already under way.

Colchester MP Bob Russell told the Mail: 'I signed the pledge and I'm not one of those people who says one thing and does another. I won't vote for the abandonment of everything we stood for in the run up to the election.'

Fellow Lib Dem Tessa Munt added: 'I fundamentally disagree with having universities only for people who can afford it.'

Labour leader Ed Miliband sought to encourage the rebellion. He said he would work with 'anybody in the House of Commons who wants a progressive system of student finance'.

He conceded students had to ' contribute' to their education but said he wanted to see a system which was fair and promoted equal opportunity.

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