High tuition fees and higher vice-chancellors’ salaries are under attack, but there could be a radical solution. What if students helped decide how much they should pay? What if they were involved in determining academic salaries too?

This happens at Mondragon University, a non-profit co-operative in northern Spain, and it is now inspiring plans for a new kind of higher education institution in the UK.

The Co-operative College, a charity with a 100-year pedigree in promoting co-operative values, has formed a working group of teachers, students and others interested in alternative education to look into developing a co-operative university. The group is due to report to the college board next month. The college will hold a conference in Manchester in November to discuss its findings.

Co-operative principles appear to be a long way from the increasingly marketised system of higher education promoted by recent government policy, but the impetus for the new institution comes from changes introduced by April’s Higher Education and Research Act. In an attempt to encourage competition leading to innovation, the act makes it easier for new groups interested in providing degree-level education to gain degree-awarding powers.

Cilla Ross, vice-principal at the Co-operative College, says she had some concerns about it (“on the one hand it’s complete mayhem”), but recognises it could offer an opportunity.

At the same time, associates of the college were interested in finding solutions to what they saw as growing dissatisfaction with the university system – experienced academics unable to find permanent contracts, others keen to try innovative ways of teaching but not supported by their institutions, management emphasis on financial rather than pedagogical values.

“Partly it’s to do with discontent over the traditional model of a university,” says Ross. “All the stuff with vice-chancellors’ pay is not going down well.”

Eduardo Ramos Arroyo, who has been drawing up a report for the working group as part of his MBA at UCL Institute of Education, says: “Many people have in mind big corporations, such as Google and Apple entering higher education. But how about something really challenging, like higher education institutions based on co-operative principles?”

The plans could gain impetus from a report to be launched this week by the Higher Education Commission, an independent body made up of leaders from business, education and the three main political parties. It will suggest that, so far, rather than promote innovation, recent higher education policies – particularly changes to funding – have helped entrench the traditional model.

The report will say the funding system presents “serious risks to the diversity of the higher education system” and many “challenger institutions” championed by government, far from challenging the standard three-year degree, aspire to it. Meanwhile, outside the established funding system, interest in new ways to offer higher education is growing. The Free University Brighton, which started four years ago offering ad hoc courses and lectures, now runs two undergraduate degrees – philosophy, and social sciences and humanities – taught by volunteer academics, with no tuition fees and delivered, usually in the evenings and weekends, in community spaces; this year teaching will take place in a portable building at a Brighton bin depot. Students cannot achieve an official degree, but receive a “freegree” certificate if they attend 75% of lectures and submit assignments.

Ali Ghanimi, who founded FUB, says student demand is huge. “We limit it to people who live in the Brighton and Hove area but we get emails from all over the country from people prepared to travel, or even relocate,” she says.

Brian Berwick, 70, retired from his job in the betting industry three years ago and is about to start his third year of a social sciences and humanities degree with FUB. He says he has enjoyed sampling student life and making friends with people of all backgrounds. “They are doing something wonderful and I’m proud to be a part of it,” he says.

Other similar initiatives include the Ragged University in Edinburgh, which organises free learning events, and the Social Science Centre, which has provided free co-operative higher education in Lincoln since 2011.

Mike Neary, professor of sociology at the University of Lincoln and a founding member of SSC, says he is interested in the idea of a cooperative university as a way of making the kind of education his centre offers financially sustainable “so staff and students can make a good living and live a good life”. But he is also interested in it as a political project promoting the values of the co-operative movement above those of capitalism.

He says the Co-operative College’s working group, of which he is a member, has been inspired by the Mondragon University model, which involves students and staff in decision-making, including agreeing not only academic salaries but what fees to pay. Students would also be involved in developing their own learning – something he has long championed through the student as producer project at his university.

The working group is looking into two main models for a co-operative university: one is trying to gain degree-awarding powers itself; the other is forming a federation of higher education co-operatives. Another possibility is that different departments and services at existing universities – student accommodation, say, or even a philosophy department – develop into co-operatives under an overall university banner.

Examples of co-operatives that could join a federation include two recently set up by staff whose courses were closing because of funding pressures.

Fenella Porter, one of several people recently made redundant from the trade union studies department at Ruskin College, Oxford, who are setting up a learning co-operative, says the model offers a practical way to continue to run courses.

Tutors being made redundant from the Vaughan Centre for Lifelong Learning at Leicester University are also planning to set up a co-operative this autumn. The centre is due to close in 2020 because, the university says, it requires “an unsustainable level of subsidy”.

Ramos Arroyo agrees a co-operative university should help counter increasing disengagement by both academics and by students. “Students will understand from day one that they have to be responsible for their own education,” he says. “That they are not just buying a degree.”