The move follows decisions by the National Union of Students and university vice-chancellors to drop opposition to loans repaid through the tax or national insurance system.
David Blunkett, shadow education and employment secretary, said repayment of maintenance costs should be related to earnings and the timescale extended.
He said the plan was fairer to students and their families and would release around Pounds 1 billion to universities for expansion. Mr Blunkett was speaking at the launch of Labour's consultation document on lifelong learning which also forms a response to the Dearing inquiry into higher education.
Labour says the inquiry should consider using national insurance contributions as a way of collecting repayments as they had low default levels. Unemployed graduates or those earning less than a minimum threshold would not pay.
The party argues that the Government's loans system had failed both students and higher education as it was inefficient, full of inequities and anomalies. Access had been curtailed and institutions were under significant pressure in trying to maintain excellence in teaching and research.
Labour does not rule out public-private partnerships in reforming the funding of loans, but is opposed to top-up tuition fees as they would be unfair to poorer families.
Labour would also review the discretionary award system and relax the 16-hour rule that limits the hours of study of people on benefits. The party says it will:
* democratise and strengthen the role of the Further Education Funding Council's regional committees;
* set up local lifelong learning forums involving all the key stakeholders in post-16 education;
* reform the inspectorate to raise standards of learning and teaching;
* review the FEFC funding methodology to ensure that quality and standards are upheld and enhanced;
* reform college governing bodies so there will be representation for local authorities, staff and students as well as business members;
* protect and strengthen local authority adult education by introducing minimum levels for classes not funded by the FEFC.
* turn the careers service into the Personal Development and Guidance Service with careers education a statutory requirement for key stage 4.