Students want tuition fees to be scrapped and replaced with a tax that would benefit graduates who work in low-paid industries such as the charity sector.
It is the first formal proposal by the National Union of Students (NUS) to set out how students should contribute to the cost of higher education.
The NUS bitterly opposed top-up tuition fees when they were introduced and has campaigned for their abolition.
But it is backing the graduate tax as part of its contribution to an official fees review beginning later this year. This is expected to recommend increasing fees from the current £3,000 a year.
The union’s blueprint, Funding Our Future, says graduates should make contributions from their salary for a fixed period of 20 years.
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The amount they pay would depend on their salaries - penalising high earners but benefiting those who end up in low-paid careers.
These contributions would be paid into a trust fund, which would manage the money and transfer it to universities. This would remove the NUS’s objection to universities charging differing amounts, depending on their status.
The report predicts that the top fifth of earners would pay 2.5 per cent of their income, an estimated average contribution of £125 a month, while the bottom fifth of earners would pay 0.3 per cent of their income, an estimated £5 a month. Those earning below £15,000 a year would not make contributions.
It says: “The total contribution a person makes would be linked to the benefit they obtain from higher education over a longer period, leading to a much higher total contribution from very high earners.”
This would not be a simple graduate tax, such as an extra penny on the basic rate on income tax for graduates, the report says.
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The proposals suggest that the contributions could be linked to higher education “credits” - the more credits a person achieves the more they pay back in to the trust.
The union predicts that after 20 years, the total revenue from graduate contributions would be £6.4 billion each year, rising to £7.9 billion after 30 years and £8.5 billion after 40 years.
Under the current system £4.5 billion is raised each year through fees, this will rise to about £6 billion if the fee cap is raised to £5,000 per year.
The union says its radical proposals are a viable alternative to the “disastrous” top-up fee system, and would still provide the sector with the funding it needs.
Wes Streeting, the NUS president, said: “NUS proposals would give universities double the amount of funding they currently receive, while allowing the children of poorer families to go to university without the fear of debt.
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“They would also prevent the emergence of a market in higher education, where only the rich could afford to attend our most prestigious universities.”
But Diana Warwick, chief executive of Universities UK, which represents vice-chancellors, said: “Far from being ‘disastrous’, we believe the variable fees regime has brought a number of real benefits, not least to students through the removal of an up-front payment and the introduction of generous bursary arrangements.”
Wendy Piatt, director general of the prestigious Russell Group of universities, said: “A deep recession is not the time to be introducing a complicated new ‘tax’. The most pressing need for universities is to maintain their income in order to maintain standards of teaching and research.
“And in the current climate it would surely be the wrong option for a Government to sacrifice billions of pounds in student loans repayments for the sake of savings in 20 years time.”
A spokeswoman for the Department for Business, Innovation and Skills said: “With record numbers going to university there is no evidence to suggest that tuition fees have deterred people from higher education. Students are supported through generous Government loans and grants as well as the bursaries universities offer.”