The UK government should create a 'tax-free education account' to help students fund the costs of university, according to the Centre for Policy Studies.

The think tank warned that graduates face debts of more than £40,000 ($64,417, €50,488) after university and they will spend much of their working lives paying the debt off.

The CPS' Introducing Education Savings Plan report called for the creation of a new savings plan, which would fund higher education through "assets, not debt".

The think tank argued that prospective students (and their parents) could be encouraged to finance their education with targeted Junior ISAs.

The targeted tax-free investment account for young people would be opened at birth (or after) and withdrawn at 18 to fund higher education.

In addition, the CPS said the investment vehicle should be labelled with a kitemark to enable young people and their parents to easily identify it and it would have a 1% fee cap.

"The current system of promoting debt as the means to higher education should be reassessed," said Henry Cobbe and Alexandra Grant, authors of the report.

"Building on the success of the Junior ISA and Child Trust Funds, a new savings plan should be introduced: the Education Savings Plan.

"This will help to ensure that young people and their supporters are not discouraged by concerns over student debt and tuition fees from aspiring to higher education."

The think tank also said that the savings plan would fund scholarships and bursaries for young people unable to afford to contribute into their own Education Savings Plan and that providers of the investment vehicle would contribute a proportion of their fees into a charity for bursaries.

The CPS estimated that £37m per year could be generated for scholarships and bursaries for financially less advantaged children, at no cost to the taxpayer.