The government should build universities in places such as Blackpool to help regenerate local economies, and boost higher education funding by making graduates repay loans more quickly, according to the minister who created England’s current student funding system.

David Willetts, the former universities minister who oversaw the switch to £9,000 student loans for tuition fees in 2012, said taxpayers were footing too much of the bill for unpaid loans.

His solution is for the government to lower the starting threshold for repaying student loans to earnings of £21,000, from the current rate of 27,295. That would save the government nearly £3bn a year, but graduates from England would see their tuition and maintenance loan repayments more than treble.

Under Lord Willetts’ proposals, a graduate earning £30,000 annually would see their repayments rise to £67 a month or £800 a year, compared with £20 a month or £243 a year now.

“It is in the interests of students that universities are well funded. But that should not come at the expense of taxpayers. It is wrong that forecast loan write-offs have risen from 28% [in 2012] to 53% today,” Willetts said. Using the proposed lower threshold, 44% of loans would be written off by the government.

It has been reported that ministers plan to lower the earnings threshold for repayments as part of the upcoming comprehensive spending review, and cuts to tuition fees and limits on some courses are also being considered.

The threshold cut was among the measures recommended by the Augar review of higher education in 2019, which also suggested cutting tuition fees to £7,500 and extending loan repayments from 30 to 40 years.

Jo Grady, the general secretary of the University and College Union, said that instead of burdening more students with debt, the focus should be on “proper” public funding. She said: “Lord Willetts, as the architect of £9k tuition fees, cannot claim to be concerned about the high levels of student debt while simultaneously proposing to hit lower-earning graduates with debt repayments.

“Lowering the repayment threshold to £21k, which is well below the average wage, will be a millstone around the neck of young graduates and risks putting students off from getting the education they need. It also fails to address the systemic problems with the university funding model which has led to rampant job insecurity and a precipitous decline in part-time and mature study.”

Writing in a paper for the Higher Education Policy Institute (Hepi), Willetts argued that demand for university degrees remained high, and he called for the government to keep expanding the higher education sector as a way of encouraging economic growth.

“Higher education has fallen out of favour. But it boosts earnings, wellbeing and the prospects of people and areas left behind,” Willetts said. “Conservatives are increasingly worried that graduates are leftwing but the party’s problem is with young people more widely. The best way to tackle this problem is by helping them fulfil their aspirations to own their home, get a decent job and – yes – go to university.”

Willetts argued that rather than attempt to reduce the numbers of school-leavers going into higher education, the government should continue to encourage campuses to appear across England.

“Many towns without one see gaining a higher education institution as one of the best ways of boosting their prospects. They attract young people to an area instead of losing them as they go to university elsewhere,” he said. “Blackpool council is supposed to have turned down a new university decades ago, so it went to Lancaster instead: now is the time for Blackpool to rethink that decision. Other towns such as Wigan and Wakefield are candidates,” Willetts writes.

Portsmouth is one of those cities that hugely benefits from its university, according to its vice-chancellor, Prof Graham Galbraith. The university has a decade-long strategic partnership with the local hospital trust, it sponsors the football club, is setting up a multi-academy trust and has plans to invest several hundred million in its city estate over the next few years.

“We are typical of universities in their cities up and down the UK,” said Galbraith. “We are the fourth largest employer in the city with a regional economic impact of £624m per annum, supporting nearly 9,500 jobs every year.

“These numbers might seem abstract but they translate to city centre shops, taxi drivers and businesses experiencing better sales when the students arrive at the start of term than at Christmas. You can imagine how much of a boost that this will be this year and the clear long-term impact our university has in our local community and economy.”

Also in the Hepi paper, Willetts included one unusual proposal: allowing universities to buy the student loans of their own graduates, giving the institutions an incentive for their graduates to earn more and continue making repayments.

“Universities should be able, if they wish, to take a stake in their own graduates’ debt so if the graduate earns more the university gets more back,” Willetts said. “The scheme needs to be designed so that universities do not have an incentive simply to select the students who will earn most.”

Willetts said such a scheme could enable universities to buy their own graduate debt at a discount to the market price, minus the university’s own write-off charge.

Responding to the paper, a Department for Education spokesperson said: “The student loan system is designed to ensure all those with the talent and desire to attend higher education are able to do so, whilst ensuring that the cost of higher education is fairly distributed between graduates and the taxpayer.

“We do not comment on speculation in the run-up to fiscal events.”