Student Loan Repayment Penalties 'Scrapped'

Plans to impose penalties on university graduates who pay off their student loans early are to be abandoned, Sky News understands.

Ministers were considering introducing annual charges of around 5% on payments above a certain limit to prevent wealthier students avoiding interest charges on the new standard 30-year repayment plans.

But the proposal has reportedly been scrapped amid fears that hundreds of thousands of students would end up losing out.

From September students will be able to take out loans to cover their annual tuition fees bill of up to £9,000 as well as their living costs.

They will begin to repay the loans once they earn more than £21,000 a year and any outstanding balance will be written off after 30 years.

Consultation on the plans to introduce early penalty fees closed earlier this year.

A No 10 spokesman said: "The consultation has now closed and we will come forward with our response shortly."

It has been reported that the scheme, which was championed by the Liberal Democrats, was scrapped as part of a deal that saw Prime Minister David Cameron back down over Business Secretary Vince Cable's choice of Professor Les Ebdon to head the Office for Fair Access (Offa).

His appointment is said to have been opposed by Education Secretary Michael Gove who is reported to believe that he was more interested in social engineering than promoting excellence in universities.

The Commons Business, Innovations and Skills Committee, last week called on the Government to reopen the selection process following a pre-appointment hearing with Professor Ebdon.

As the director general of Offa, Profesor Ebdon will be responsible for ensuring the introduction of higher tuition fees do not deter students from low-income backgrounds from going to university.