A new report says the Federal Government is missing out on $1 billion worth of unrecovered student loans, but students say they should not be muscled into paying up.

The Grattan Institute says up to 17 per cent of the Government-backed Higher Education Loan Program (HELP) funds will never be repaid, this year alone it totals about $1.1 billion.

The think tank says arts students are the least likely to pay back their loans.

It says they often find part-time or casual work, meaning they do not earn enough to trigger repayments.

Grattan has raised some possibilities for making back the lost funds.

Collecting debts from people who move overseas was one option.

“There are various things that could be done,” Grattan Institute's Higher Education Program director Andrew Norton has told the ABC.

“You can use debt collectors to travel overseas and you can match passports to collect when people are in Australia,” he said.

“We think that would be a last resort. What other countries tend to do is that you can let it go for a few years and then take legal action to recover all their money in one lot.”

Recovering loans made to now deceased estates would be a good way to reduce debt too, Mr Norton says.

“Where the issue of deceased estates come in, most of these people are actually in recently affluent households,” he said.

“They're the second income earners in the house and so they will have a share in the family household assets which otherwise would eventually go to their children... but a small part [could] go to repay the HELP debt.”

“With these modest reforms, we can achieve the goals of HELP at a much lower cost.”

Adelaide University’s Vice-Chancellor Professor Warren Bebbington agrees with the suggestions.

“Australia was the first to have a sort of income-contingent loans system, in which those on low incomes were not deprived of an education and didn't need to start paying back until they earned above a certain level,” he said.

“[But] students who move overseas never have to repay their debts and in New Zealand and in the UK, which adopted a model based on ours, that's not the case.”

The full Grattan Institute report is available in PDF form, here.