They will have to decide whether to charge students the maximum of pound;3,000 to avoid giving the impression that the provision they offer is of lower value than universities.

Alternatively, they may have to decide if it will be more advantageous to offer cut-price degree courses to make their courses more attractive to students.

Around 35 “MEG” colleges in the mixed-economy group offer their own full-time degree courses for which they will be entitled to charge tuition fees of up to pound;3,000.

An extra 130 colleges offer degree courses on a franchise basis from universities, for which they can also charge fees.

Susan Hayday, who is leading on the Bill for the Association of Colleges, said: “It is a real issue in terms of deciding what to do.

“To go cheaper may give a college a market advantage, but to go higher may persuade prospective students that the college is offering the same high course quality as a university.”

She said the implications for colleges of the Higher Education Bill are very unclear. “The Bill does not really consider FE colleges delivering HE courses and their ability to set their own fee levels,” she added.

“It does not consider whether colleges should set their fees independently of the local universities they franchise from.

“It could be that at colleges where degrees are franchised, students are offered the same degree course at two different fee levels.

“The principal of one college has arrangements with seven different universities, which may all set different fees, which will then affect what colleges will charge.

“He is concerned that some universities may want to charge pound;3,000 whereas the college may want to charge less.”

When asked about the dilemma, Alan Johnson, the minister for further and higher education, said: “They will have to work it out for themselves.”

The minister took part in a round table discussion on tuition fees with a group of students taking level 3 courses at Lewisham college, south-east London, on Tuesday.

Under the Higher Education Bill, presented to the Commons by Education Secretary Charles Clarke, the pound;1,125 advance tuition fee will be abolished in 2006.

Universities and colleges will be allowed to set fees of up to pound;3,000 to students taking degree courses.

Concessions announced that are designed to ease the passage of the Bill include capping the fee at pound;3,000 until 2010. They were welcomed by John Brennan, AoC chairman.

He said capping will prevent elite universities effectively pricing many poorer students out of the market for the time being, and poorer students should also welcome Government plans for individual financial support of up to pound;2,700 per annum.

Dr Brennan added: “While we strongly support the principle of university students paying fees, allowing a free for all in fee-setting would have increased existing barriers to elite universities for poorer students, which even the more generous bursary plans would not have surmounted. Some stability in the level of fees into the foreseeable future is therefore going to be helpful.

“We are also pleased that the attention of the access regulator will be focused on the elite institutions, where even now some continue to take half their student population from public schools.

“The measures announced today should begin to strike a better balance between the responsibilities of the state and the individual to pay for their higher education, a balance which has long been in place for the millions of students studying vocational qualifications in FE colleges.”

However, a survey of more than 300 16 to 19-year-olds, conducted in Manchester, revealed a high level of confusion about financial arrangements for higher education among young people.

The research, a project between the Learning and Skills Development Agency and Manchester Metropolitan University, said most were confused by the barrage of news and initiatives on financial support, and ignorant about the costs and fees they are likely to meet at universities.