Could three years of poverty and a ?12,000 loan be enough to put a person off university? Yes, reports Anne McHardy.

Costs are deterring school-leavers from entering ÖйúAƬ, particularly those from working-class backgrounds. That is the message from anecdotal evidence and research commissioned by the Department for Education and Skills. Furthermore, students who do apply are increasingly basing their choice of institution on proximity to home in order to avoid paying rent.

This trend is widening the divide between undergraduates from different backgrounds, as middle-class students continue to predominate in institutions with the best academic reputations, while working-class students gravitate towards the newer universities. Overall, however, applications continue to rise, lending support to the government's claim of widening access.

But there are indications that prime minister Tony Blair is aware of the problems. He has asked Will Cavendish - adviser to education secretary Estelle Morris - to examine the options and has told the Labour National Policy Forum that a return to maintenance grants for the poorest might be considered.

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The Institute for Public Policy Research, a left-leaning think-tank, added to the growing body of evidence recently when it argued that means-tested fees of up to ?1,075 and loans of about ?3,500 a year deter working-class students. It recommended maintenance allowances similar to the ?30 a week for sixth-formers that were introduced as a large-scale pilot study two years ago.

Whether grants for the poorest would fully redress the balance is debatable. Other evidence shows that a proportion of students from white-collar families without a family tradition of attending university are also being deterred by projections of debt.

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According to figures prepared by Barclays Bank, students' cost of living has shot up and this year's graduates left college with an average debt of ?12,000. And suggestions that the student-loans system might be privatised has raised fears that interest rates on student debt could rise.

Although few studies have been completed, the anecdotal evidence is mounting that debt is a deterrent, particularly in low-income areas such as Tower Hamlets in London. Teachers involved in schemes to encourage non-traditional entrants to apply for ÖйúAƬ say that fear of debt is a serious issue. John Beckett, a ÖйúAƬ adviser in London, says: "Lack of proper financial support is causing (non-traditional) students to restrict their options and to feel they are continuing their education because it is a necessary evil rather than a positive desire."

Even pupils from reasonably well-off backgrounds are concerned. "I worry about the cost," says Michael Osborne, a sixth-former at St Thomas More RC School in London's Wood Green. He intends to study film and his parents are supportive. But he says friends are "doing the sums".

A female charity worker from London who asked not to be named says she has three children, one who graduated two years ago, one just graduated and the youngest awaiting AS-level results. The middle child chose to study in London because he was among the first year of fee-payers. Several of his school friends, all with good A levels, opted to take a year out to earn money for university.

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The mother says that the charity she works for, which offers advice on education funding in an area with a high proportion of Bangladeshi families, sees many young people keen to go to university but whose parents have no culture of ÖйúAƬ and are angered by the thought of student debt. "It causes a lot of problems in families," she says. People who rely on benefits they receive for all working-age family members are particularly worried about losing vital income.

The picture is the same elsewhere. Research at Plymouth University shows that "57 per cent of students are from the Southwest. This is an increase on past years. The reasons are financial," says Charles Jackson, marketing manager of the business school. "They are staying within an hour of home so that they can get there more easily at the weekends. Now they are travelling home for the weekends when they would have taken more part in university life."

One reason there has been so little research on the effect of loans and tuition fees is that it is difficult to track down people who have not applied for financial reasons. Helen Connor of the Institute for Employment Studies at Sussex University, who conducted a study on behalf of the Department for Education and Skills, had to do her research partly among undergraduates for this reason, although 71 per cent of them said they had friends who were put off by cost.

She found that, although more people are going to university, the proportion of middle-class to working-class students has not changed. The research was tilted towards universities with a higher proportion from deprived backgrounds because, in the traditional universities, they were too small a proportion to study.

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"The achievement of 'mass' levels of participation has not been accompanied by a significant reduction in disparities between social class groups," Connor's report says. "As a young person aged 18-21, you are still more likely to enter ÖйúAƬ if you come from social class Group 1 than from Group 5 and these odds appear to have changed little in the past two decades."

Among the non-appliers interviewed, 40 per cent said they wanted to start work and earn money and 28 per cent said that cost was the reason for not applying. "A range of financial concerns were raised by respondents, including worries about living costs, the absence of maintenance grants and the loss of 'benefits'," the report says.

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The National Union of Students says the situation is deeply worrying. NUS president Owain James says the government's research is "a damning indictment of its student funding system". The real deterrent effect will not be seen for a few years, he says, probably with non-traditional middle-class entrants being affected first, with a "trickle down" to working-class entrants. "If people cannot go on to study because they do not have the money, that is bad for our whole society."