Doubts over fees collection

EU students' fees could be more than £70m

The government says it will change the law to close a loophole that would have allowed graduates to escape paying much of their student debt by becoming bankrupt.

Guidelines from the government's Insolvency Service said student loans were on the list of debts that could be cancelled out by bankruptcy.

The Department for Education said it would act to stop this allowing people to avoid higher tuition fees of up to £3,000 a year, being introduced from 2006.

But in a separate development, it is not clear how tuition fees will be recovered from students from other European Union countries who come to study in England - which could be more than £70m a year.

'Not an easy route'

A Department for Education spokesperson said: "Government policy is, and always has been, that student loan debt should not be written off with bankruptcy.

"Graduates should not see bankruptcy as an easy route to clearing their debts."

It was reviewing the legislation and would be amending it "to ensure it meets our policy."

Under the new system from 2006, tuition fees will be covered by loans repayable through the income tax system in the UK, once graduates' earnings are above £15,000.

But there is no mechanism by which the government can do that for overseas students.

How it works

A total of 9,602 people from other EU countries were accepted onto undergraduate courses in the UK this academic year.

EU STUDENTS IN UK(CHANGE FROM 2001-02)

England: 8,086 (-5.7%)

Scotland: 1,136 (+7.5%)

Wales: 373 (+5.4%)

NI: 7 (N/A)

Total 2002/03: 9,602 (-3.9%)

The majority - 84% - are in English universities, with most of the others being in Scotland.

At present in England, Wales and Northern Ireland, undergraduates from the EU on full-time higher education courses pay up to £1,100 in tuition fees (£1,125 for 2003-04), depending on family income.

Under the new system, the 8,086 students in England this year would probably notch up £9,000 each in fees over three years - or more than £72m in total.

Conservative education spokesman Damian Green is tabling questions in the Commons, asking how the government intends to recover this.

"Otherwise universities will never know how much money they are going to receive in fee income, and the funding crisis in our universities will not be resolved, even though British students are being hit hard in the pocket," he said.

"What is really shocking is that this has come as a surprise to the government, which ought to have thought through this kind of vital detail."

'Difficult, if not impossible'

Last week the Education Secretary, Charles Clarke, highlighted the problem as one of his reasons for having ruled out a straight graduate tax as a way of raising universities' incomes.

He said: "It is very difficult, if not impossible, to collect money from EU students studying in this country though a graduate tax, whilst fees can still be charged to them.

"We failed to find a convincing solution to this problem."

A spokesperson for his department said on Monday they were "working up" the details of how the new system would work.

"The Student Loans Company already has mechanisms in place to recover loan repayments from graduates who are not repaying through the tax system."

Scotland leads

In practice Scotland is likely to have to deal with the issue first.

EU COUNTRIES INVOLVED

Austria

Belgium

Denmark

Finland

France

Germany

Gibraltar

Greece

Ireland

Italy

Luxembourg

Portugal

Spain

Sweden

The Netherlands

Plus from 2004:

Cyprus

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Slovakia

Slovenia

From the 2000-01 academic year, students studying in Scotland have not had to pay tuition fees if they live permanently in Scotland - or if they are from another EU country outside the UK.

Instead, Scottish graduates will be expected to contribute £2,000 to a fund for poorer undergraduates.

The Scottish Executive says people can cover this by applying for a loan from the Student Loans Company.

It will then recover the debt through the Inland Revenue, at the rate of 9% of income once that is over £10,000.

Or people can choose to pay the £2,000 by cheque.

Because the system began only in 2001, and Scottish undergraduate courses are typically four years long, no-one has yet had to make the contribution - the first will be due in April 2006.

No-one therefore has had to deal with the situation in which someone from outside the UK simply does not pay up.

What if?

A spokesperson for the Executive said: "There are existing arrangements at the Student Loans Company for collecting repayments of student loans from students who are working outwith the UK tax system or abroad.

"EU students who choose to use the student loan to meet their graduate endowment liability will repay using this system."

She said the Students Awards Agency Scotland "has well-established procedures for pursuing outstanding debt".

It would extend these to cover EU students and anyone else who did not elect to repay their debt direct or by taking a student loan."

For students from outside the EU, universities and colleges can charge whatever they want.

In 2000-01 the average fee was £6,765 for classroom-based undergraduate courses.