Tories are expected to reveal student plans in the autumn

At present, loans are effectively interest free - but tuition fees, which the Tories want to abolish, are to be increased to �3,000 per year.

But a party spokesman declined to comment on whether the student loan claims in the Daily Telegraph were true.

The Liberal Democrats say that charging higher interest rates would see poorer students "priced out" of universities.

'Real' interest

The Conservative higher education policy is expected to be announced by party leader Michael Howard in the autumn. So far the party has been opposed to tuition fees.

Under the terms of the Higher Education Act, passed earlier this year, maximum annual tuition fees in England will rise to �3,000 from autumn 2006 - to be re-paid when graduates are earning at least �15,000 per year.

The government, which only narrowly avoided a House of Commons defeat in pushing through the increase, says this charge is essential to fund the ongoing expansion of higher education.

There have been calls for the Conservatives to explain how they would fund the removal of tuition fees.

The Daily Telegraph report claims that extra funds would be raised by increasing the interest charges on student loans.

As they stand, graduates start repaying the debt once they earn �10,000 a year. The interest is adjusted for inflation, so no "real" interest rate is charged.

Total outstanding student debt in the UK rose 18.7% to just over �14.6bn last year.

Education minister Stephen Twigg said: "After six months of dithering over a new higher education policy the Conservative Party has come up with half-baked plans that are already in turmoil.

"Under the Tories' plan the interest charged to students on their loans will just keep growing and growing, like a credit card."

Liberal Democrat education spokesman Phil Willis added: "Michael Howard is now showing his true colours. Under his plans only the wealthy should apply to universities."

He added: "By far the most expensive element of attending university is maintenance costs.

"By introducing real-term interest rates poor students will end up with astronomic levels of debt and many will be put off going to university altogether."

But a Conservative spokesperson said that the party would not comment on the report's claims.

"We shall announce our policy in detail later in the year. Our policies will be, as we have always said, better for students, taxpayers and universities than the policy on offer from the government."