For the first time there would be national regulations to protect students on franchised degree and sub-degree courses.
Government funding chiefs this week published plans to prevent universities withholding cash from colleges with franchise agreements.
College leaders welcomed the proposals. They insist that payment for franchised courses should be based on student needs.
One in eight HE students enrol through FE colleges, many of them under franchise arrangements with universities. Government proposals to expand further and higher education student numbers by 500,000 in three years made the need for the rule change more pressing. FE colleges are expected to cope with the bulk of sub-degree expansion.
Next year the Higher Education Funding Council for England will take over funding all higher education courses in FE colleges. The new regulations aim to ensure that all HE students' courses are of comparable quality, no matter what type of institution students are studying at.
One of the council's main concerns is that only a small proportion of funds received by universities are passed on to colleges. Research commissioned by the council shows some universities pass less than a third -31 per cent - of allocated funds to colleges through franchises.
John Brennan, development director at the Association of Colleges, said:
"We welcome some degree of regulation in this area, there has been a great deal of variation in practices, with higher education institutions withdrawing agreements at short notice and questioning FE involvement in programmes. "
There is concern within the HEFCE and the Further Education Funding Council that many colleges had allowed themselves to be exploited. Colleges had been too ready to accept lower levels of funding than they were entitled to.
The HEFCE says it does not want to prescribe what is offered by FE or HE institutions. It says that there is "no good case" for restricting sub-degree level work to colleges, and universities should "continue to be able to grow such provision I Similarly, there are strong reasons not to deny further education colleges the option, where appropriate, of running courses at first degree level."
The council proposes that a contracting institution should be responsible for the quality and accountability of HE provision in a non-HE sector institution. Terms and conditions would need to be set to ensure a fair deal for students. Key considerations would be the level of resource per student, and the need to ensure choice for locally-based students.
A contract between the university and the service provider would guarantee student numbers over an agreed period. Council approval would be needed for any significant change.
"To ensure stability and coherence, we need to avoid situations where student numbers controlled by one institution but delivered by another are moved around by the former at the expense of the latter, and without taking account of local demand," says the council in a consultation paper.