ALL Scottish graduates will have their student loans wiped out if the SNP win the next Holyrood election, under plans being drawn up by the party's research unit.

The radical policy, being examined by the Nationalists' shadow education spokeswoman Fiona Hyslop, is to be debated at the party's conference in Aviemore next month.

If approved by delegates, the measure is likely to be central to the SNP's "pro-enterprise" manifesto in 2007.

The Nationalists believe the multi-million pound debt racked up by graduates has become a drain on the economy and a constraint on consumer spending, and writing it off would be an extension of current party policy to replace student loans with grants.

One idea being discussed by SNP policymakers is for an Alex Salmond-led government to take responsibility for the debt and repay it over 30 years.

The Sunday Herald also understands the write-off would include all payments due under the Graduate Endowment, the Lib-Lab policy introduced in 2001 as a way of paying for student bursaries.

Although SNP researchers are still finalising details of the plan, the policy is thought to include every student who lived in Scotland during their university or college course.

The SNP plan comes against a backdrop of rising graduate debt, with Barclays Bank recently predicting the average Scot could be GBP34,000 in the red by 2010. Bankruptcies have also increased rapidly in recent years, from 31 in 1997 to 1541 in 2004.

MSPs in all parties are concerned that graduates have to earn almost GBP22,000 just to pay off the interest on their loans.

Below that figure, graduates watch as the interest mounts.

"The current system doesn't make sense for either the Executive or graduates, " said Hyslop.

The Lothians MSP believes the debt write-off, which will be raised on Tuesday at a student stakeholder meeting at Holyrood, is part of the SNP's low-tax, pro-enterprise agenda that her colleagues will take into the 2007 election.

She said the policy, rather than simply being a social justice measure, would boost the economy by increasing graduates' disposable income.

"Graduates are being held back by debt. We need to liberate them from this burden. It will help people get on the move economically." In addition, she insisted, it was "sound public policy" because taxpayers are already paying for debt that can't be clawed back.

SNP strategists also see the policy as a vote-winner, as the debt amnesty would affect thousands of Scots across the income, age and gender scales.

Student finance is likely to be one of the big issues in the runup to the next Scottish parliament election in three years.

The recent Liberal Democrat leadership contest, which pitted Mike Rumbles MSP against eventual winner Nicol Stephen, saw both candidates try to woo younger voters with student-friendly policies. Both MSPs seemed to back the abolition of the Graduate Endowment - the GBP2000-plus levy the LibDems helped introduce in the first term of the parliament.

Even the Scottish Tories, who support student loans, back the abolition of the Graduate Endowment on the grounds that it is an unnecessary tax.

Labour MSP Richard Baker said the SNP's loans idea was another "absolutely bizarre" policy that they could never afford to implement. "I don't think the SNP could do this. It's a political gimmick, rather than a serious policy for the future of further and higher education. It's costly and ill-thought."

James Alexander, the depute president of NUS Scotland, said he welcomed any attempt to tackle student debt, but said the policy should not be balanced by cutting funding for existing or future students.