The Tomorrow's growth report encouraged teenagers to embark upon "earn-while-you-learn" courses equipping them with the high level skills they need for employment.
CBI policy director Katja Hall said because young people are now faced with an average university debt of £27,000, they are becoming a lot more "savvier" in shopping around for routes into the job market.
"Universities must be much more innovative to take advantage of the change in students' approach," said Hall.
"And we need businesses to roll up their sleeves and expand high-quality alternative routes where degrees are not the best option for young people."
The report said universities need to boost the number of employer-backed "sandwich" courses and compressed or part-time degrees, which give students practical work experience or allow them to support their studies.
The CBI urged ministers to address the 40% drop in part-time undergraduate applicants since 2010/11.
It also said businesses need to expand their commitment to high-quality training schemes, such as higher and advanced apprenticeships, work-based training, and fast-track schemes aimed at school leavers, alongside traditional degrees.
Hall said: "There is a growing demand for 'earn while you learn' schemes, yet far too many are shrouded in mystery. Six out of 10 young people don't go to university, so we need to give them much clearer advice on the options, costs and finance out there."
The report called for more apprenticeships and much more "inspiration" in providing careers advice in schools. A UCAS-style system listing the availability of vocational courses would also help persuade young people to opt for alternative options to the three-year degree.
"Careers advice in England has never been as good as it needs to be with vocational options long undersold as an option for young people," Hall said.
Ann Pickering, HR director at Telefónica UK said the traditional university approach to having a good career is "anachronistic".
"The CBI is right to highlight the need to increase the number of workers with higher-level skills," Pickering said.
"The education and business sectors need to seize the opportunity to play an active role in the development of new technical and vocational training solutions.
"Only through this collaborative effort will we be able to create a workforce that is truly fit for the future and that caters to the needs of a rapidly developing digital economy."