University tuition fees and interest rates on student loans should be slashed, a report will recommend this week as ministers warn that many degrees are terrible value for money.

The Augar review of higher education is expected to call for annual tuition fees to be cut from £9,250 to £7,500 and interest rates on student loans to be reduced from 6.3% to as little as 1.5%.

The review, chaired by the banker Philip Augar, aims to ease financial pressures on young people and help to divert them from university degrees to vocational and technical courses. Further education colleges will receive a cash boost.

The changes would save some undergraduates thousands of pounds. The average debt on graduating is about £50,000.

Damian Hinds, the education secretary,