By Claire West

Following the successful vote in the House of Commons on changes to graduate contributions for 2012/13, Secretary of State for Business, Innovation and Skills Vince Cable said:

“Today’s vote has been an important step in turning the Coalitions commitment to deliver a high-quality university sector that is more responsive to the needs of students into a reality.

“Under our proposals no student will have to pay upfront for tuition and both parties in the Coalition have worked hard to develop a much fairer and progressive graduate contribution scheme.

Graduates will only begin to repay the cost of their tuition and living support once they are in high earning jobs, with significant discounting for those on low and modest incomes.”

Minister for Universities and Science David Willetts said:

“Our higher education reforms have struck a fair balance between ensuring we advance social mobility and properly fund our world-class universities

“The package is fair for students, fair for graduates and affordable for the nation. Next year the Government will publish a higher education White Paper covering the long-term issues arising from Lord Browne's report.”

The key elements of the package are:

Graduate contribution

Any university or college will be able to charge a graduate contribution of up to £6,000.

In exceptional cases, universities will be able to charge higher contributions, up to a limit of £9,000, subject to meeting much tougher conditions on widening participation and fair access. It will be up to the university or college to decide what it charges, including whether it charges at different levels for different courses.

Any university or college will be able to charge below £6,000. Universities and colleges wanting to charge above £6,000 a year will have to show how they will spend some of the additional income making progress in widening participation and fair access.

The Office for Fair Access will be able to apply sanctions in cases where universities do not deliver on the commitments in their access agreements, up to and including withdrawing the right of the university to charge more than £6,000.

Loans and maintenance grants

The Government will lend any eligible student the money to pay the university or college for tuition costs. For the first time, part-time students will be entitled to a loan and no longer forced to pay up-front costs, so long as they are studying for at least 25% of their time.

A new £150m National Scholarships Programme will be targeted at bright potential students from poor backgrounds. It will guarantee students benefits such as a free first year or foundation year.

Students from families with incomes of up to £25,000 will be entitled to a more generous student maintenance grant of £3,250 and those from families with incomes up to £42,000 will be entitled to a partial grant.

Maintenance loans will be available to all eligible full time students irrespective of income.

Further details of loan rates for students living at home, those living away from home and studying in London, and loans for longer courses will be provided in due course.

Students deferring from 2011/12 to 2012/13, will be able to apply for loans and grants at the 2012/13 rates. Tuition charges for 2012/13 will be determined by individual universities.

Part-time students

All eligible part-time undergraduates who study for at least 25% of their time will now be able to apply for a loan to cover the costs of their tuition which means you no longer have to pay up front

Part-time students will not however be eligible for maintenance support.

Repayment system

Graduates who have completed their studies and become one of the country's higher earners will make a higher contribution towards the cost of their education. That is because as their earning rise, so will the rate of interest applied to their loan balance.

Graduates will not make a contribution towards tuition costs until they are earning at least £21,000, up from the current £15,000. The repayment will be 9% of income above £21,000, and all outstanding repayments will be written off after 30 years. This means all graduates will pay less per month than they do under the current system.

The £21,000 earnings threshold will also be uprated annually in line with earnings from April 2016 (when the majority of students who commence a three year degree course in September 2012 will become liable to repay.

In order to make the system financially sustainable, a real rate of interest will be charged on loan repayments, but with a progressive taper:

For graduates earning below £21,000, there will be no real rate of interest applied to their loan.

For graduates earning between £21,000 and around £41,000, a real rate of interest will start to be charged, reaching a maximum of RPI plus 3%.

Above £41,000, graduates will repay at the maximum, rate of RPI plus 3%.

Under our new more progressive repayment system, around a quarter of graduates, those with the lowest lifetime earnings, will pay less than under the current system.

The Government is committed to the progressive nature of the repayment system. It will consult on potential early repayment mechanisms so that people on high incomes are not able to unfairly buy themselves out of this progressive system. These mechanisms would need to ensure that graduates on modest incomes who strive to pay their contribution early through regular payments are not penalised.