Plans to impose penalties on students who pay off university loans early are being ditched, the Government is expected to announce next week.
Ministers were considering introducing annual charges of about 5 per cent on payments above a certain limit to prevent wealthier students avoiding interest charges on the new standard 30-year repayment plans.
The proposals were billed as “progressive” but the Government is dropping them amid fears hundreds of thousands of students could lose out.
It has been reported the Lib Dem scheme 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) despite fierce Conservative opposition.
From September students can to take out loans to cover their annual tuition fees bill of as much as £9,000 as well as their living costs.
They will begin to repay the loans once they earn more than £21,000 a year. Any outstanding balance will be written off after 30 years.
Consultation on the plans to introduce early penalty fees closed earlier this year. Ministers are expected to announce the plans have been dropped next week.
A No 10 spokesman said: “The consultation has now closed and we will come forward with our response shortly.”
As Offa director general, Prof Ebdon will be responsible for ensuring that higher tuition fees do not deter students from low-income backgrounds from going to university.
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, a view echoed by Conservatives on the Commons Business, Innovations and Skills Committee, which last week called on the Government to reopen the selection process.