Universities are being actively encouraged to make savings by cutting the courses they deliver through partner colleges, it has emerged.
Some at the Higher Education Funding Council for England (HEFCE) are suggesting that cutting franchised provision to colleges is an easy way for universities to make savings while protecting their core honours degree provision.
But leading vice-chancellors are horrified at the suggestion, saying it would choke their supply of students, many of whom enter university from further education. They have also warned of damage to the widening participation agenda.
Les Ebdon, vice-chancellor of the University of Bedfordshire and chair of the Million+ group, representing 28 of the UK's newer universities, said: "Some at the funding council are saying you can steal student numbers back off FE colleges, which I think is desperate. Among the vice-chancellors I talk to there is a feeling of shock and horror. We have had partnerships with colleges for a number of years and they are very important to us. But there are all sorts of siren voices saying this is a quick way to make a saving."
Universities are being forced to cut student places in response to a pound;915 million reduction in funding between 2010 and 2013. Exactly where cuts will fall should become clear after next week's HE allocations.
Professor Ebdon said that universities could be tempted to recruit full- time, three-year honours degree students instead of paying colleges to run two-year foundation degree courses for students who may then only spend one year at the partner university to top-up to honours level.
A HEFCE spokesperson said that the council had not advised any institutions to cut HE in FE provision. He said: "We do not intervene in franchise arrangements, although our expectation is that franchise arrangements should usually offer security of funding and student numbers for at least three years."
He added that students who top-up at their local university to a bachelors degree, having completed a foundation degree at an FE college through a franchise arrangement from the university, would not count again towards the cap on numbers. They would be classed as students of the university throughout their foundation degree.
The threat to HE courses delivered in FE, worth an estimated pound;400 million a year to colleges, has alarmed the Association of Colleges (AoC), which this week wrote to business, innovation and skills secretary Lord Mandelson.
In a copy of the letter acquired by FE Focus, AoC chief excutive Martin Doel urged him to fund more college-based HE directly, rather than through university-led franchises.
He wrote: "We are seeing early signs . that as they come under pressure to cap student numbers, universities are exchanging cost-effective, flexible and employer-responsive foundation degree courses for higher cost full degree courses.
"If you could directly fund a greater proportion of foundation degrees in colleges, rather than through university franchising, you could deliver more workers with higher level skills at lower cost."