Low-earning graduates to be spared loan repayments

Graduates would not start to repay their student loans until their earnings reached £21,000 a year under a shake-up of university funding to be proposed today.

Lord Browne of Madingley, the former BP chief executive, will recommend that the earnings threshold at which repayments start be raised from the current £15,000 level. This is likely to be accepted by the Coalition Government.

Lord Browne will also propose the lifting of the current £3,290 cap on tuition fees. Universities will suffer government cash penalties if they raise them above £7,000, the level that most are likely to charge.

To make the system more progressive, the Browne inquiry suggests that loans, which are currently in effect interest-free, could have variable interest rates related to future earnings.

Vince Cable, the Liberal Democrat Business Secretary, who will give his interim response in a Commons statement this afternoon, will order further work on such a "sliding scale" to try to head off a revolt by MPs from his own party, who all promised to oppose a rise in fees at the general election.

Lord Browne, whose report was commissioned by the last Labour government, also proposes measures to improve social mobility by encouraging students from poor backgrounds to go to university – including an expansion of scholarships and bursaries by universities.

Last night Mr Cable tried to "sell" the blueprint to his party's MPs at a meeting at Westminster, while David Willetts, the Conservative Universities minister, held similar talks with Conservative backbenchers. Liberal Democrat leadership sources later claimed the revolt was fading and were increasingly confident that the Commons would approve the package in a critical vote in six weeks.

But Greg Mulholland, MP for Leeds North West, insisted: "We will not accept a rise in fees. The message is very simple – don't introduce something we can't support. It would be a mistake. This is an iconic issue and we have to make our voice clear now. There are a good number of us who simply will not tolerate any risein fees."

Liberal Democrat MPs with a large student population in their constituencies, such as Julian Huppert in Cambridge and Stephen Williams in Bristol West, may not be swayed by the concessions.

The Prime Minister has invited all party leaders, as well as Mr Cable and the shadow Business Secretary, John Denham, to meet Lord Browne in his Commons room this morning in an attempt to gain all-party support for his approach. Ed Miliband will attend the talks but is a strong supporter of a graduate tax.

Addressing his first meeting of the Parliamentary Labour Party since becoming leader, Mr Miliband promised to stand up for the "squeezed middle".

He is worried that the variable interest rate plan could hit middle-income earners harder than high earners, who could repay their loans more quickly and therefore face smaller interest payments.

Mr Miliband said Labour needed to show humility after its general election defeat, adding: "We cannot blame the electorate."

Mr Cable has ruled out a graduate tax. "We have looked at dozens of options but it doesn't work," a government source said last night.

Mr Cameron told a press conference that a graduate tax would increase the public deficit for the next five or six years and not break even until 2040. He admitted that thefees issue was "very difficult" for the Coalition but said: "Everybody has to compromise because the truth isthat we all want the same thing. I think that on all sides, those of us who want well-funded universities, brightchildren from poor homes being able to go to those universities, universities than can be the best in the world – we need change."

Grades, not cash, should be priority

Omari Douglas, 16

"The money always has been an issue for me. I am a member of a single-parent family, and following one route into drama college puts me up against a great deal of competition, while going to university looks like it will mean a huge outlay of money.

I thought studying something I enjoy would serve me best in the long run. But now I feel under pressure to take something I don't enjoy as much but which leads more obviously into a highly paid job. There should be a closer relationship between the potential a student has to make a success of their time in higher education and their ability to actually get there. Their parents' bank balance should not play such a pivotal role."

Lucy Humphreys, 16

"I am very reluctant to compromise on the subject I take, so the only thing I can do if the money is prohibitive is try to find a cheaper university. Even if I work really hard and get the best results I can, I may never get to a top university. The better universities will always want the better students; that's fair. But it should be linked to grades, not wealth."