Graduates could face debts of £21,000 under new plans for higher education funding. But will it stop people going to university? Lindsay Jennings reports

FOR American student Stephanie Joyce, the decision over which university she should attend was dictated by one major factor - money. In America, higher education is provided through a mixture of state and private institutions. A state subsidised college would charge around $6,000 a year including tuition, room and books, whereas a private university would cost up to $25,000 per year.

Without a college fund set aside, Stephanie, 26, opted for a five-year psychology degree at the state Massachusetts College of Liberal Arts. But she still needed a series of part-time jobs of up to 20 hours a week to have enough money for living costs. Her father helped pay the bulk of her tuition fees and she contributed some money with an insurance settlement. Despite her frugality, she now owes the American government $10,000 - along with 3.7 per cent interest on the debt.

"I never considered not going to college, it was simply not an option if I wanted to attain the level of professional success I aspire to," says Stephanie, who now works for a telephone company in Boston.

"I've been trying to pay as much as I can, from $120 to $200 dollars a month, so I can minimise the amount of interest I have to pay the government. But it will probably take me several years to pay it off in full and it has been a significant budgetary constraint."

As Britain edges closer to an American-style university system, students are facing even bigger debts hanging millstone-like around their necks. Already, the average student leaves university owing around £12,000 to £15,000. But under the Government's controversial proposals, to be published in its White Paper on Higher Education today, those debts are set to soar to as high as £21,000.

Up front fees - currently at £1,100 a year - are likely to be scrapped in favour of universities charging students up to £3,000 per year for their studies. The taxman will begin clawing the loans back when a graduate's earnings hit £15,000. Those on average salaries will be expected to pay around £60 per month. But the high earners - those on over £30,000 a year - are likely to pay interest charges on top, with figures of three to five per cent being suggested.

The funding shake-up is part of the Government's attempt to secure the £10bn that British universities need to compete with the best in the world. What cannot be assessed is the extent to which it will put off poorer students from attending university, and as to whether a two tier system will become more evident, where such as Oxford or Cambridge are only open to the rich or the very poor. Under the new proposals, Labour is planning to bring back maintenance grants, which they abolished in 1997, of around £1,000 a year for those families earning less than £10,000. Parents earning less than £30,000 will get smaller sums.

But the early signs of wider participation are not good. A MORI poll earlier this week revealed that, out of 1,086 students, one in three said they would not have opted for their first choice university if it had charged top-up fees. It includes 16 per cent who said they definitely would have chosen a university which did not charge a top-up fee.

According to Oliver Fulton, Professor of Higher Education at Lancaster University, it is the way the new funding arrangements are structured and what incentives there will be for less well off students which will determine whether the poorer ones are put off attending university.

At Harvard University, for example, there is a "needs blind" system whereby students can apply regardless of how much money they have. If they secure a place, the university will guarantee you will be able to attend.

"In America, the system is basically that you charge people who can afford it half as much again as it costs to study and put that money into subsidising poorer students. Instead of charging $10,000 for a course you would charge $15,000 or $20,000 and the poorer students pay nothing," Prof Fulton says.

"There are huge numbers of scholarships and support grants. They also give students jobs on campus and subsidise those so they end up with quite a generous wage.

"What the Government must do in Britain is to make sure that everybody can afford to go to the kind of institution they want to go to, not just the poorest or the richest students. There will have to be very good scholarships or bursaries and maintenance grants for the poorer students, and we need a system which is staggered for those in the middle so it's not just a case of whether or not you can afford it.

"There would need to be a lot more put into financial advice so that students in the sixth form understand what they're getting into. Also a public awareness campaign, as they have in America, pointing out the benefits of attending university and in particular reassuring people that if they want to attend a top tier university, they can."

It is unclear yet how universities will decide how much they charge for individual courses. For example, science, engineering and medicine courses are traditionally the most expensive to run, but Britain is already desperately short of engineers and doctors. It may be that costs increase for popular but traditionally cheaper courses, such as business management, because universities know there is no shortage of students wanting to sign up for them. They would effectively subsidise the more expensive courses.

The Government may also wipe out the debts of those students who are entering public sector jobs such as teachers and nurses, as long as they stay in those professions for a set period.

What is clear, says Professor Fulton, is that those most likely to feel the pinch are the ones caught in the middle, who do not qualify for a scholarship but are not rich enough to attend the top universities

"I think people are going to be thinking about the price in a way they haven't done in the past. If Oxbridge costs more than Newcastle and Durham, people will be thinking hard about what they are going to do," he says.

"It's also not clear what will happen to the older students who are aged 25 and over, who are living away from home and are assessed on their own income. They might think: is it worth giving up a job and facing bigger debts?"

The figures from The College Board, which administers admission in the US, do appear to support the theory that leaving colleges owing thousands of dollars is considered "good" debt. Around 54 per cent of high school graduates from the lowest income bracket go on to higher education - a figure which has risen steadily over the past 30 years.

Says Stephanie: "The consensus is that having a college education will provide you with more opportunities to succeed, therefore scraping together money for your child's education by taking out bank loans or mortgaging your home is considered a necessary evil.

"But while the federal government offers a wide range of financial aid options, many families simply cannot afford to make up the difference. Hence many bright children do not attend college because of a lack of money, which I find outrageous.

"You would think the government would pull out all the stops to ensure that its best and brightest are given the best possible chances for success, but often this is not the case."