The fee that university graduates in Scotland pay when they finish their degrees has been abolished in a political deal that will see the Scottish National Party consider proposals to raise student support from ?4,400 to ?7,000 a year.

Fiona Hyslop, the Education Secretary, said she would consider the idea, put forward by Liberal Democrats in the Scottish Parliament, in return for their support for the Bill abolishing the graduate endowment fee. This move will in effect restore free higher education to Scotland.

In a tight vote, the ruling SNP needed the help of the Lib Dems and the Greens and an independent MSP to get the legislation through.

A bid by Labour and the Conservatives to force the Scottish Government to set up an independent commission to look at university funding and student support failed by just two votes.

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The Scottish graduate endowment came into being in 2001 after an independent review convened by lawyer Andrew Cubie. Student tuition fees were scrapped and, instead, graduates paid ?2,289 when their earnings reached ?15,000, with the money given to poorer students in the form of bursaries.

Students became eligible to pay the endowment in April 2005, and about 70 per cent of them added it to their student loans. This has generated ?26.3 million in debt, which will now be written off.

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In last year's Scottish Parliament elections, the SNP pledged to scrap the endowment, claiming it was a deterrent to students, and to write off all student debt. However, it has yet to find the estimated ?1.8 billion needed for the latter.

Opening the debate in the Scottish Parliament, Ms Hyslop said: "Let us release our students from the burden of graduate endowment debt, let us remove a financial barrier to learning and let us restore Scotland to its proud place as the home of free education."

She promised to look at proposals put forward by the National Union of Students - and backed by the Lib Dems - for there to be a guaranteed minimum student support package of ?7,000 in loans and bursaries, up from ?4,400.

This secured the Lib Dems' support for the scrapping of the endowment.

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But Rhona Brankin, Labour's education spokeswoman, said: "The SNP claims that abolishing the graduate endowment will improve access to higher education and tackle student hardship, but those claims are not accurate."

She hit out at last year's Budget settlement, which allocated Scottish higher education ?30 million extra over the next three years, ?138 million short of what it had asked for.

"The SNP Government has broken its promise to university principals that abolishing the graduate endowment would not impact on university funding. Is it simply a coincidence that, at the same time as the Government is seeking to abolish the graduate endowment, it has also produced a cut in university funding?"

The Tories' spokeswoman, Elizabeth Smith, said there needed to be a root-and-branch review to address the "funding levels that are required to ensure that Scotland can compete on the international stage".

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tariq.tahir@tsleducation.com.