The study from thinktank Demos, expected on 3 February, says that lowering the cost of loans to the taxpayer would allow expansion of the system, proper competition for places and would end a "vicious circle" where universities are able to set high fees due to excess demand.

Without such measures, the government would be forced to continue overly bureaucratic policies such as the AAB and core-and-margin plans to try to force competition on the sector, with unintended consequences.

The suggestion forms the key recommendation put forward in the Future Universities report, which calls for loans to be made less generous by lowering the repayment threshold of ?21,000, scrapping the 30-year period after which debt is written off, increasing repayment levels or putting up interest rates.

"Developing and implementing [such policies] would take political bravery and a willingness to admit that the present White Paper, while right in its general thrust, is wrong on many details," the report says.

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"But after surveying the evidence, these are the policies we believe would best serve future generations of English students and taxpayers," it concludes.

Matt Grist, the senior researcher at Demos who wrote the report, said his findings were based on the premise that the current state of the UK's public finances meant that increasing direct taxpayer funding for universities would prove to be too difficult.

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"If the government kept the basic structure of the repayments scheme but made it less generous, it would [face a much reduced] loan write-off and could thus expand provision, widening access by allowing more people to attend higher education and creating a virtuous rather than a vicious circle," he said.

As well as changes to the loan system, the report also calls for bursaries and fee waivers to no longer count towards university access targets so that students have clear information on the cost of different institutions.

Such benefits should instead be offered centrally on a means-tested basis through the loans system to stop them distorting fee levels.

Their removal from access agreements would then allow the Office for Fair Access "to relentlessly focus on outreach programmes, which are proven to be the most effective way of widening access to university", the report adds.

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Other recommendations include backing for up to 70 per cent of some degrees to be based on syllabuses set by other institutions, more research funding for academics to pursue small individual projects such as writing books, plus a national charter on standards, paid for by a business levy.

simon.baker@tsleducation.com.