Government finally learns lesson on students

The Government's spectacular U-turn over student finances did not get the attention it might have had there not been an international crisis to focus on.

Details are yet to be thrashed out, but the Government is considering reintroducing grants, reducing dependence on student loans and a new tax for graduates. The new system is earmarked for introduction in 2003 but before parents consider cancelling direct debits to savings schemes set up to fund their offspring through higher education, they should note that there will almost certainly be an element of means testing attached to the grants.

The emphasis will be on helping students from 'less privileged' backgrounds, so the children of middle income parents might still find themselves depending on parental handouts, loans and part-time jobs. Nevertheless, the review is welcome because it recognises the deep concern among many parents - including many the Government deems to be well off - about the current system. If The Observer's postbag is anything to go by, worries about funding children through university are one of the chief sources of anxiety for parents. Often, they are sacrificing their own pension planning and general financial wellbeing to educate their children. With ever-bigger holes in pensions and endowments, the demands on many families' finances have become impossible to juggle.

The other aspect to the present system that many find unsavoury is the official blessing it gives to debt. Many students leave university owing five-figure sums. This does not give them a headstart in facing the responsibilities they must bear in funding other aspects of their lives.

A graduate tax would be a back-door way to make students pay for their education, though it would be less of a burden than debt repayment. Until now the Government has shied away from the idea of taxes earmarked for specific purposes and this is another policy U-turn. It will not make the already horrendously complicated tax system easier to fathom, but it is probably too much to hope for a return to a simple system of student grants. This could even be a precursor to other types of designated tax.

Mortgage lenders, with a few exceptions, moved with almost indecent haste to cut their loan rates after the latest cut in the base rate. Savers are set to lose out again in the struggle to keep the economy on an even keel.