Thousands of Scots students will no longer have to pay a fee once they graduate after the Scottish Executive yesterday set out plans to scrap the charge in an attempt to drive up the number of school-leavers entering higher education.

Fiona Hyslop, the Cabinet Secretary for Education and Lifelong Learning, also revealed that millions of pounds worth of graduate endowments remain outstanding, six years after the charge was introduced.

However, the minister gave a hint that the SNP's pre-election vow to write off all student debts and replace loans with means-tested grants will be ditched because it would be too costly to implement.

Scottish graduates can currently pay £2289 immediately or add it to their student loan, paying it back once they start earning £15,000 a year, with the money being used to fund bursaries for students from low-income backgrounds.

Ms Hyslop said she planned to abolish the charge so that those currently at university, including those who are due to graduate this summer, will not have to pay.

English students attending Scottish universities will not be affected by the measure, however, and will continue to pay tuition fees.

Around 50,000 students will benefit from the move, which will cost around £15m a year to implement.

Ms Hyslop also insisted that the student bursaries will continue to be funded from the public purse. "I believe the basic principle of Scottish education is that it should be based on the ability to learn - not the ability to pay," she told MSPs.

"This is a critical step towards achieving this vision not just for today's students, but for tomorrow's, as well as for their families, our society and the whole of Scotland."

Participation in higher education had fallen in Scotland for the first time since the Reformation after the graduate endowment was introduced in 2001 by Labour and the Liberal Democrats, Ms Hyslop said.

She also revealed that only £12.7m had been paid by students so far, with £26.3m having been transferred onto their existing loans, meaning it would not be paid back for years.

"Of this £26.3m, in three years the princely sum of only £47,000 has been returned to the taxpayer," said Ms Hyslop.

"With the taxpayer losing out, graduates losing out and Scotland losing out it is difficult to see who this has ever actually benefited."

On writing off loans and re-introducing grants, Ms Hyslop would only say "this work is actively continuing".

But with the cost of the move estimated at £100m a year, the chances of it being implemented are slim.

Ms Hyslop said she hoped to pass legislation abolishing the graduate endowment by April 1 next year. The bill would pass with the support of the Greens and the LibDems, who also promised to scrap the charge in their manifesto.

However, both Labour and the Conservatives yesterday said the money would be better spent on improving colleges and universities.

Hugh Henry, Labour's Shadow Education Secretary, said: "It tinkers around the edge of what the SNP promised to students.

"The SNP talk is all about students and nothing about increasing investment in colleges and universities."

The announcement was given a cautious welcome by students. James Alexander, the president of the National Union of Students in Scotland, said: "We applaud the executive's significant move to reduce graduate debt and the acknowledgment that debt is a real barrier for many potential students."

'It was a bit of kick in the teeth and I felt it was a bit sneaky'
Hannah Batchelor is one of the unlucky ones. Because she graduated last year she will still have to fork out more than £2000 to pay her graduate endowment despite the Scottish Executive's plans to scrap the charge.

The 22-year-old from Glasgow, who graduated with a degree in fine art from Dundee University's Duncan of Jordanston College of Art and Design, has not yet fully paid off the endowment because she has still not found a permanent job. Ms Batchelor, from Newlands, on the south side of Glasgow, who is currently working part-time to make ends meet, paid off some of the charge when she graduated, but added the bulk of the endowment to the £8000 she owes in student loans after completing her studies.

"It was a bit of a kick in the teeth and I felt it was a bit sneaky," she said. "When I graduated I already had quite a lot of debt and then you were hit with a bill for more than £2000.

"It is a significant additional burden and it is a very good thing that future students don't have to pay it, although it would be quite nice if they got rid of it for students who have recently graduated as well. Students are under a huge amount of pressure and cannot afford to leave part-time jobs in order to pursue a career. This is a welcome step, but doesn't solve the overall problems of debt."

Ms Batchelor said the removal of the graduate endowment would benefit many of her friends who had built up even greater levels of debt.

"I was pretty lucky because my parents paid my rent and I lived off my loan, but there are lots of people who are in a worse position."