Ministers are being urged to write-off £11 billion of interest on student loans in a major overhaul of the system of university funding.
A report backed by two former Cabinet ministers says ending interest payments on student loans would drastically reduce the soaring numbers of write-offs which are threatening the long-term stability of the public finances.
In return, unpaid loans would not be automatically written-off after 30 years but would be extended to retirement age, helping to ensure much higher rates of recovery.
At the same time the report calls on ministers to ease the pressure on taxpayers by creating new government-backed student bonds, which would be offered to pension funds and other major investors, to help finance the system.
The report is published by UK2020, the think tank established by former Conservative minister Owen Paterson and backed by Lord Adonis, an ex-Labour minister who now chairs the National Infrastructure Commission.
It argues that ending interest payments would leave students and graduates better off, even though they would have to continue repaying loans until they reach retirement age.
Urging reform, Lord Adonis said: "It has become increasingly clear that the university merry-go-round of cartel fees and ever-increasing vice-chancellors' pay is doomed.
"For too long universities have had free rein to grab as much as they can from students, graduates and the taxpayer with precious little regard for the value they provide."
Mr Paterson said: "The country needs to fund superb universities that are fit to take on the global competition in the decades ahead.
"This has to be achieved in a way that works for the whole of society."