More loans, less grants mark sea change in Britain, writes Rupert Wilkinson.

The British way of financing university students is getting more like the American one - less reliance on student grants, more on loans and student earnings, and the prospect of student-paid tuition fees. I do not say there is conscious imitation: other modern countries, driving to expand higher education, have diversified the ways in which students are financed. We are moving, nonetheless, toward a system developed in very different circumstances to ours, not all of which can easily be reproduced.

Walk into any American college library and you will see students doing most of the front-line jobs. The jobs will often be controlled by the campus Financial Aid Office and they will rest on an old American tradition of "working your way through college". Creating the same situation here invites trade union resistance as well as opposition from library managers anxious about professional standards.

Other features of the United States system, however, can be imported. It is worth looking carefully at the American way of student aid to see what should be rejected and what can be used - even improved upon - over here.

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At almost all of the varied institutions that make up US higher education, student aid starts with the principle that students and/or their families should pay all they reasonably can for their education, including tuition fees, as an "investment". To try to bridge the gap between what can be afforded up-front and the total cost of going to university, the campus Financial Aid Office helps the student put together a "financial aid package". It usually comes in three parts: "scholarship" grants, subsidised loans (with low interest that starts after university), and campus job. federal and state governments pay for much of this (some of the Federal loan subsidies are under threat from congressional Republicans), but a significant chunk of the student's aid often comes from the university itself and some may come from a private scholarship foundation. Due to ceilings on the amount of government aid a student can get, the university's own grant is particularly important at selective private institutions charging high tuition fees (more than $18,000, or Pounds 12,000, a year is not uncommon).

Student-paid tuition fees are not unique to the US. In the l920s and 1930s British universities depended on them for about a third of their revenue, the rest coming from public money and endowment. What is distinctively American is the enormous range in tuition fees, not only between different types of institution, but between the actual discounted prices paid by different students at the same university.

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The reasons for this go all the way back through US history, to the ambition of different churches and communities to build their own colleges, often ahead of demand and without much government support. Notions of educational democracy and the growth of competition between private colleges and more heavily subsidised state colleges were all factors that helped produce a variety of pricing and student-aid policies including price discounts. To expand student markets, fees were offset by aid.

Who today gets the aid? Most of it at all three levels - federal, state and university - is "need-based" (means-tested) but many universities use part of their aid money to attract students they want, irrespective of the student's ability to pay.

In addition to "merit" scholarships not based on need (including athletic scholarships), universities often "repackage" the aid that is officially based on need. Desirable students, especially academic high- fliers and minority-group students sought for "diversity", are apt to get bigger grants and smaller loans in their aid packages than other students of the same income.

So what are the lessons for Britain? The main ones apply to tuition fees, student loans, and links between the two. If and when our universities charge tuition fees, they will be tempted to discount their prices, or give grants, not just on the basis of student financial need, but to get specially-desired students, whatever their means. Short of engineers? Wish you had more applicants with glittering GCSEs and A-level predictions? Offer them a deal.

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If we follow US practice all the way, our universities will spend a lot of expensive staff time calculating (miscalculating?) the admissions yields on different discount offers to different groups of students. From a social standpoint most of this will be wasted: non-needy recipients of such bribes will not get a better education because of it.

US practice suggests that when student aid is not restricted to "need" much of it is used simply to compete for talent without spreading that talent more widely.

Since the l960s, the idea of introducing "income-contingent" loans - paid back slowly after the graduate reaches a certain income above the national average - has been discussed in both countries.

The idea itself is basically sound and fair, but universities will be tempted to use it to justify tuition fees that are not geared to student income. In fact this would still be unfair. Students from richer families would have to borrow less, and so incur less interest charges in the years ahead, than students from poorer families.

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Whatever the loan scheme, universities charging tuition fees should be required to reduce the fees according to student means - and nothing else. Otherwise scholarship price wars will be rife, as they are in the US. To prevent this, indeed, elite groups of US colleges got together in the l950s to agree to admit students without regard to income, give aid only on the basis of need, and use a common means-testing formula that set the "expected family contribution" of each aided student.

In l991, the Bush administration's litigators in effect stopped this as a form of price-fixing banned by the Sherman anti-trust act. In Britain, however, we are constitutionally freer to operate this kind of price control. We will need it if we wish to change our university pricing and student aid policies without adopting the more wasteful and inequitable features of the American college marketplace.

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Rupert Wilkinson is professor of American studies and history at the University of Sussex.