About 10% of students in English universities avoid having to rack up large debts and pay “sky-high” interest rates because they are rich enough to pay their fees upfront, researchers have said.

Approximately 110,000 undergraduates are “escaping” the student fee system by paying for university in one go thanks to a “get-out-of-jail-free card” from their wealthy families, according to a think-tank.

The study, by the Intergenerational Foundation, also found that the proportion of students who self-fund is higher at the Russell Group of elite UK institutions, such as Oxford and Cambridge universities.

Angus Hanton, the co-founder of the thinktank, said its report “makes a mockery of claims that the current system is progressive, since the wealthiest kids are not even in the system”.

“The government should treat all students fairly and that means reducing the interest rates charged while at university, reducing fees, reintroducing maintenance grants, and lowering the repayment rate so the average young person does not face a marginal tax rate of more than 40% for the next 30 years of their lives.”

The thinktank found that 10.21% of the 1.08 million UK-domiciled undergraduate students taking first degrees in 2016-17 were self-funding.

The IF said paying upfront meant the wealthiest students avoided having to pay about £6,000 of interest while at university.

On the other hand, those who borrow are charged about 6.3% in interest, more than four times the government’s borrowing rate of 1.5%.

The IF said those who borrow face having 9% of income over £25,000 a year deducted from their wages for the next 30 years.

A quarter of the 24 Russell Group universities in the UK had self-funding levels for full-time first degrees at more than twice the national average. These included King’s College London, with 20%, Cambridge and Oxford with 16% each, University College London with 14.5% and LSE with 14%.

The report’s author, Rakib Ehsan, said: “The current student loan system, while being clearly inter-generationally unfair, is also exacerbating intra-generational unfairness.

“Even though the number of self-funders has decreased dramatically since fees were increased to £3,000 and then trebled in 2012 by David Willetts, then secretary of state for education, wealthier families have realised that they can give their children a get-out-of-jail-free card by helping them to escape sky-high interest rates and a 30-year loan that could be sold off to the private sector in the future.”

Shakira Martin, the president of the National Union of Students, said the report was “more evidence that the current system is not fit for purpose”.

“While wealthy students can avoid accruing debt and the high interest which comes with student loans, too many students from low-income families grapple with a cost of living crisis and unaffordable housing.

“Wealthy students can focus on their studies, while too many poorer students work long hours to make ends meet.”