A consortium of retail banks could offer?undergraduate loans to cover tuition and maintenance costs under a new system of student finance, according to a vice-chancellor floating the controversial idea.

Rama Thirunamachandran, vice-chancellor of Canterbury Christ Church University and former director of research, innovation and skills at the Higher Education Funding Council for England, said that the current model for student finance is unsustainable in the long term if the sector is to expand.

He is thought to be the first head of a UK university to publicly moot the idea of using the banking system, rather than government-funded loans, to provide access to student finance.

¡°There probably needs to be a substantial rethink about how higher education is funded in the UK,¡± said Professor Thirunamachandran, who speculated about whether there are ¡°options to consider¡± in moving to a loan system that is ¡°underpinned by the private sector¡±.

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He added that policymakers needed to look again at how best to share the costs of higher study between individuals and taxpayers.

In December,?the government said?that the cost of lifting the cap on student numbers would be met by selling the pre-2012?book of income-contingent loans.

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Recent estimates from the Department for Business, Innovation and Skills suggest that 40?per cent of the outlay on post-2012 loans will never be repaid, and critics believe that the actual amount is likely to be higher. Professor Thirunamachandran?said: ¡°The numbers don¡¯t add up.¡±

In 2012, Sir Eric Thomas, vice-chancellor of the University of Bristol, came under scrutiny after leaked documents revealed that?he had in the previous year sent details of a private finance scheme to the universities and science minister. In an email to David Willetts in 2011, Sir?Eric outlined a system in which uncapped tuition fees are paid by private investors in return for a proportion of a graduate¡¯s salary.

Last year, Sir Christopher Snowden, president of Universities UK, told Times Higher Education that it was not ¡°inconceivable¡± that the government would approach banks about ways to provide funding.

Describing his idea, Professor Thirunamachandran said that banks offering student loans would be subject to ¡°significant regulation¡± and that interest rate charges would have clear caps. Any schemes would also?need to be agreed and underwritten by the government, he said.

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He added that a student who turned to the private sector to borrow would have to be able to do so in a ¡°semi-regulated environment¡±.

¡°Is that more transparent and sustainable than the current model, where you have got student loan books being sold off?¡± he asked.

There are private loan systems in the US and in South Korea, where higher education participation rates are much higher than the UK¡¯s, Professor Thirunamachandran said.

He said that he was ¡°pretty certain¡± that any new model would require contributions from students and taxpayers. But he suggested that the government¡¯s contribution to higher education could be viewed in a ¡°different way¡±.

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¡°One of the things I would argue that the public purse should buy [is] access to university for those who are from disadvantaged communities,¡± Professor Thirunamachandran said.

He added that whatever funding system is developed in the future, no able and qualified student should be prevented from entering higher education by a lack of finance.

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¡°That is where designing any funding model is actually quite challenging,¡± he said.

holly.else@tsleducation.com