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 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.
The proposals were billed as "progressive" but the Government is dropping them amid fears hundreds of thousands of students would lose out.
The Lib Dem scheme was reportedly scrapped in a deal which 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, despite fierce Conservative opposition.
A Downing Street source told The Telegraph newspaper: "The Lib Dems were very keen to appoint Ebdon, and we felt very strongly about penalties for early repayment of loans.
"This is hopefully good news for tens of thousands of families, as well as many Conservative MPs who had raised concerns about the penalties."
From September students can take out loans to pay annual tuition fees of up to £9,000, as well as their living costs, and will begin to repay once they earn more than £21,000 a year with any outstanding balance written off after 30 years.
Sally Hunt, general secretary of the University and College Union, said: "Government should be prioritising how to make it easier for poorer families to afford university rather than focusing on yet another policy designed to make life easier for the wealthiest in our society. Today's move exposes once again that we really are not all in this together.
NUS president Liam Burns said: "Ministers must come clean on student finance to ensure those on low and middle incomes are not duped into chipping away at their outstanding debt even when it rarely makes financial sense to do so, particularly for those who are seeking to get on the housing ladder or start a family."
Read More
Tim Leunig, chief economist at think-tank CentreForum which called on the Government to ditch the plans last year, said: "This is the right decision taken for the right reasons. Evidence shows that the students who repay their loans early are not the wealthiest, but the most debt averse."
