Image copyright Phil Coomes Image caption Major changes to student funding took effect in 2012

Graduates could face tougher conditions on their student loans because of uncertainty over long-term debt repayments, a report says.

The Higher Education Policy Institute says the potential impact of low loan repayments decades ahead is beginning to affect universities' budgets now.

The government says the Treasury will share any extra costs with the business department over a 30-year period.

And this will protect other parts of its budget from unexpected pressures.

The introduction of higher £9,000 tuition fees in 2012 - funded up-front by government-backed loans - led to concern about the sustainability of the funding system in the longer term.

The higher the fees, the bigger the loans and therefore the larger the up-front payment by the government.

And the scale of the sums being loaned out and the length of time graduates have to repay them, along with predictions about the economy and wages, lead to many uncertainties about how much will be recouped.

'Budgetry pressures'

The government initially predicted, in 2010-11, that it would lose 28% to 30% of the money it lent to students. This rate is known as the resource accounting and budgeting (RAB) charge.

The then Universities Minister, David Willetts, dismissed concerns about potentially huge losses from unpaid loans as too far in the future to have any impact on current university funding.

But by autumn 2013, the RAB charge was predicted to be 35%, and by early 2014 to 45%.

However, author of the Higher Education Policy Institute (Hepi) report Andrew McGettigan said changes imposed by the Treasury in 2014 meant the sustainability of the current undergraduate fee-loan regime was no longer an academic question about what happened after 2045.

"Budgetry pressures arise today," he said.

'Toughening terms'

The Treasury had imposed a new settlement requiring the Department for Business, Innovation and Skills to improve repayment rates from 55p per pound loaned to 65p per pound, or see its spending cut year-on-year, he said.

He added: "Uncertainty surrounds the estimations of future graduate repayments, but their estimated value has deteriorated markedly in recent years.

"This decline generated a major challenge for the [Department for Business, Innovation and Skills] budget, which has faced a cumulative shortfall of perhaps £10bn over the last four years.

"Unplanned cuts for 2015-16 were only averted by changing retrospectively the accounting and budgeting conventions for student loans in 2013-14."

'Cash freeze'

Mr McGettigan said it was likely the business department would continue to freeze tuition fees at £9,000 - eroding their value to universities - and tighten up graduate-repayment terms by freezing the repayment threshold at £21,000 from 2017.

This would effectively lower the salary level at which repayments start, because of inflation.

He added: "These are two things within its power that would control levels of loan repayment and bring estimates of non-repayment towards the target."

Universities UK has also been looking at the issue of reducing the cost of student loans, but it is unlikely to welcome the fixing of tuition fees, which would result in a cash freeze to undergraduate income.

A Treasury spokesman said: "The Department for Business, Innovation and Skills (Bis) and HM Treasury introduced an arrangement to share any additional costs of student loans over a 30-year period.

"This will enable Bis to afford any additional costs that may arise without having a significant impact on other parts of its budget."

National Union of Students president Toni Pearce said: "This report yet again highlights the utter shambles which was the last government's trebling of tuition fees.

"It would be outrageous to now suggest that students should now be forced to pay for this through any change to the student loan terms and conditions, and students and their families simply would not stand for it."