Vince Cable proposes graduate tax in funding rethink
Business Secretary Vince Cable has said a variable graduate tax could make England's student funding system fairer and more sustainable.
This would mean students repaying their tuition costs through taxation, once they started working, with higher earners paying more.
Mr Cable said students would "almost certainly" have to pay more as funding cuts hit the sector.
The UCU lecturers' union warned such a tax may merely "rebrand" student debt.
There is an independent review of university fees and funding being carried out by former BP boss Lord Browne.
The business secretary said he would ask the review to examine "the feasibility of variable graduate contributions".
Students and the university sector are bracing themselves for the outcome of the review, with many predicting that tuition fees could rise from their current level of £3,225 a year to as much as £7,000.
In his speech at London's South Bank University, Mr Cable said students would "almost certainly" have to pay more, and called for a "radical re-think" of how universities are funded.
He warned of the "severe financial pressure" to come and said there may even be a "period of contraction" in university budgets in the next few years.
Mr Cable said that by linking the graduate repayment mechanism to earnings, it may be possible to establish a system where low earners would pay the same or less than they do now, and high earners would pay more.
He earlier told the BBC that under the current system, "if you're a school teacher or a youth worker you pay the same amount as if you were a surgeon or a highly-paid commercial lawyer".
"I think most people would think that's unfair," he said.
He said that graduates, on average, earned £100,000 net of tax more over their lifetimes than comparable non-graduates.
There was a need to develop a university funding model based on the idea of less public support and greater contribution from those who benefit the most from it, he said.
At present, the government lends students money to cover the cost of fees, with graduates beginning to pay back the loan once they are earning more than £15,000 a year.
Mr Cable also set out ways of cutting the costs of higher education to both taxpayers and students - such as promoting two-year degrees, more students living at home and more flexible, part-time courses.
He also called for a wider role for private institutions in higher education, which could offer to teach such courses.
University funding is a difficult area for the Conservative-Liberal Democrat coalition. Liberal Democrats pledged to phase out tuition fees within six years and several signed a commitment to oppose fee increases.
Lib Dem MPs have been given a right to abstain in any votes on the issue.
University and College Union general secretary Sally Hunt said the key test of the fairness of the system would be whether graduate debt went up or down under it.
"The government must understand that it simply cannot rebrand student debt as a graduate tax, nor should it expect students to pick up the bill for its punitive cuts agenda," she said.
The National Union of Students welcomed the graduate tax proposal but warned any proposed alternative must be genuinely fair and progressive to win students' support.
NUS president Aaron Porter said the fair solution was to abolish tuition fees and ensure graduate contributions were based on actual earnings in the real world, rather than guesswork.
University leaders have warned cuts could be devastating and could damage the UK's position as a world leader in research and higher education as well as the country's ability to move out of recession.
The funding squeeze comes as record numbers of people are applying to university, figures due out on Friday are expected to confirm.