Students are being advised to steer clear of a website that will ask them to pay out cash to solve their debt problems.

Stopsearching.com, set up by Dale Stephenson, was due to launch this week. The site, which will be aimed at students who may be away from home for the first time and finding themselves in debt, asks for a £10 entry fee for a lottery-style prize draw that promises to wipe out their student debt.

But following an investigation by Times Online, the National Union of Students is advising its members not to enter.

David Malcolm, finance officer for the National Union of Students, said: "Regardless of the operational issues, it is not in any case something NUS would ever recommend students consider.

"While it's understandable that a student or graduate burdened with debt might be tempted to enter in the hope of an easy way out, gambling is really not a realistic means to reduce or eliminate student debt whatever the site says.

"We would suggest that anyone who feels they are struggling with their debt should speak to a professional adviser in their students' union or elsewhere."

Under the Stopsearching.com scheme, once 5,000 have entered the "draw", Mr Stephenson says he will pay out around £12,500 – enough to clear the average debt of the university graduate – to a winner who will be chosen at random. The simple arithmetic of the business looks good: Stopsearching.com will have £50,000 income for an outlay of a little more than one-fifth, plus the cost of setting up the site, each time they stage such a draw.

Mr Stephenson told Times Online that he has "no qualms" about targeting people in debt, and that he has similar schemes aimed at people struggling to keep up with mortgage repayments.

"Students have to contend with a lot these days, student debt is encroaching ever larger sums of money, combined with the fear that, if they get a job, will their degree suffer, and still they get offered more and more high interest credit cards," he said.

The NUS is particularly concerned that students struggling to make ends meet could be misled by Stopsearching’s marketing spin. Mr Stephenson describes the competition "with odds of 1 in 5,000" as providing a "realistic chance" of winning. He also compares the odds he offers favourably with the National Lottery and represents the competition as a "real solution" to debt problems.

The company’s press material says: "Dale wanted to provide his customers with a realistic chance of winning a competition and clearing their debt, requiring only minimum investment with a real solution at the other end, not robbing Peter to pay Paul."

It is unclear how the competition will actually operate, but the Gambling Commission told Times Online that from the marketing material, the site "sounds like it may be an illegal lottery." The industry regulator is investigating the site following the approach from Times Online.

After being contacted by Times Online yesterday, Mr Stephenson today said Stopsearching.com was now planning to ask competition entrants a qualifying question before allowing them to enter the draw in an attempt to comply with Gambling Commission requirements.

That could mean the webside would avoid "the distribution of prizes by chance", which would be unlawful in the UK.