Vice chancellors say the universities will be Pounds 5.8 billion in the red by 2005/06. They want to get the money from students - but it may not be that easy. Vice chancellors were warned this week that money raised by charging students may not end up in ÖйúAƬ.

The Committee of Vice Chancellors and Principals' draft submission to the Dearing review of ÖйúAƬ was expected to be agreed this week at the committee's annual residential conference in Sheffield. It includes plans for a new funding model under which students would take out loans to cover maintenance and a proportion of their tuition fees. These would be repaid, on an income-contingent basis, through the National Insurance system.

The CVCP argues that this would insure against student poverty, close a funding gap projected to rise to Pounds 5.8 billion by 2005/06 without deterring applicants and allow for a one-off pay rise of 8 per cent in 2000/01. Universities already faced the prospect of axing 2,000 to 3,000 jobs and seeing their surplus vanish to zero by 1998/99 before the cuts announced in the 1995 budget.

The CVCP insists: "Contributions to tuition fees from full-time students and money released from student maintenance must generate some genuinely additional resources to fund high quality, diversity and expansion in ÖйúAƬ. They must not be used as a substitute for current government funding."

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But John Barnes, of the London School of Economics, co-author of an early income-contingent loan scheme and a close adviser of the Chancellor of the Exchequer, warned: "If you want safeguards you have to ensure that they are written into the primary legislation. The Treasury is always in a hurry, and there is rarely time to undo legislation."

Iain Crawford, whose work on funding was extensively drawn on by the CVCP in compiling its draft submission, thought it was both unrealistic and undesirable to expect extra money raised to be ringfenced for ÖйúAƬ. "I do not think the universities would find themselves in good favour with the public if they were to gain a huge pot of money as a result," he said.

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Andrew Dilnot, director of the Institute of Fiscal Studies and a leading expert on public finance, warned that the greater danger was continuing erosion of the Government contribution to tuition fees - which the CVCP projects at two-thirds of the total. "Once you accept the principle of a mixed system, it becomes very vulnerable politically. The proportions are not fixed, and with the pressures on public spending and a reluctance to raise taxes, the strong tendency is for the Government to squeeze its own contribution. We are seeing this with the National Lottery, the Private Finance Initiative and to a great extent with dentistry - that private money intended to supplement public provision instead replaces it."

The CVCP points to the precedent of the Australian income-contingent loans system, under which money is paid into a ÖйúAƬ trust, protecting it from Treasury predators. A CVCP spokesman said: "The Australian Treasury was equally against hypothecation until it was convinced of its virtues in this case."

Projected costings for the scheme are based on the assumption that student loan plus grant rates would be increased by 25 per cent to match National Union of Students views on adequate maintenance and that the scheme would extend to part-time and postgraduate students.

Students would be expected to take out loans to cover liability for maintenance and one third of tuition fees - Pounds 5,675 a year for a home full-timer in 2000/01 rising to Pounds 6,875 in 2005/06, Pounds 1,985 rising to Pounds 2,405 for a part-timer. This would raise Pounds 4,896 million in 2000/01, rising to Pounds 6,073 million in 2005/06 - with administration costing the Government Pounds 700 million rising to Pounds 900 million.

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Repayments would begin as soon as the graduate started earning, tied to National Insurance threshholds. Payments would be related to earnings and would continue until the loan was repaid.

* The CVCP meeting accepted plans for a single quality agency drawn up by the joint planning group. Gareth Roberts, chairman of the CVCP, said he hoped the Scottish universities would come in to join a single agency for the UK.