Nick Timothy said many school leavers receiving their A-level results on Thursday are being "forced" into expensive degrees that fund a "gravy train" for university bosses.
The adviser warned that without radical reform the system will continue to "blight young people's futures", leaving them carrying "millstone" debts of Â£50,000 - the majority of which will not be paid off.
Branding conventional wisdom that university degrees are best for the economy as mistaken, Mr Timothy called for the use of technical qualifications such as apprenticeships to be expanded as part of a new system.
Writing in the Daily Telegraph, he said: "Today, hundreds of thousands of young people receive their A-level results, and it is difficult not to worry about their future.
"The fortunate among them - those studying at the best universities and taking the best courses - may go on to prosper.
"But those who choose the wrong institutions and courses will see little benefit, while those who do not go to university - still a majority of young people - will be neglected."
A July report by the Institute for Fiscal Studies found most graduates will still be paying off student loans into their 50s, and three-quarters will never clear the debt.
"We have created an unsustainable and ultimately pointless Ponzi scheme, and young people know it," Mr Timothy said.
Mr Timothy recognised that it would be too expensive to scrap tuition fees entirely and clear graduates' debts, calling Jeremy Corbyn's pledge to "deal with" the issue "wrong and deceitful".
He also dismissed the introduction of a "graduate tax", paid for once in employment, as it would still encourage students to take unproductive degrees in the expectation that others will pay.
Mr Timothy supported a system proposed by education policy expert Professor Alison Wolf of offering a "single financial entitlement" to school-leavers.
As well as university degrees the repayable funds could be spent on technical courses with fees capped at a lower level.
This would tempt students away from poor-quality degrees while increasing competition among universities - which would have to lower fees as a result.
He also cited Baroness Wolf's research that suggested a proliferation of technical qualifications would help boost productivity in the economy.
Mr Timothy is credited with developing significant parts of the PM's educational policy and was a key architect of the Conservatives' election manifesto.
The Government declared at the time: "For too long in this country, technical excellence has not been valued as highly as academic success."
The pledges included the introduction of "T-levels" in place of existing technical qualifications for teenagers, as well as a pledge to invest in "institutes of technology" in England's major cities.
But the Department for Education announced in July that the teaching of T-levels had been delayed by a year.
Meanwhile it emerged this week that the Government will end its contract with the embattled training provider learndirect - the country's largest provider of skills, training and employment services - due to concerns about standards.
Privatised in 2011, the firm is owned by private equity firm Lloyds Development Capital - an arm of Lloyds bank - employs 1,645 people and is responsible for almost 73,000 trainees and apprentices.
A damning Ofsted report on the company, which received Â£158 million for the year to July 2017, is due to be released on Thursday after the firm lost a High Court bid to block its publication.
Learndirect said it was ''extremely disappointed'' with the verdict, but added: ''Learndirect Limited's underlying business remains stable and we continue to be focused on supporting our learners as usual.''
Mr Timothy worked as the PM's joint chief of staff with Fiona Hill until they quit their posts following criticism over the Tories' election campaign.