Academics have accused Sir Ron Dearing of caving in to the industry lobby and failing to heed the government advisers who warned against the expansion of higher education.
Government officials told the committee that the arguments for expanding the proportion of young people in higher education from 32 to 45 per cent did not hold water.
Employers, through the Confederation of British Industry, had lobbied hard for expansion to more than 40 per cent. But DFEE officials insisted that the balance between new entrants to work and those retiring would more than meet increased demand.
They also questioned the economics. While it was accepted that graduates earned higher salaries, there was no evidence of a net gain to the national economy.
There are also in-built costs in the expansion of HE in FE as the rise in uptake of Higher National Diplomas and Certificates would trigger even greater demand for degrees.
Peter Robinson, a leading researcher on education and employment trends at the London School of Economics Centre for Economic Performance, said: "There was much scepticism in the department where the view was that cash would be better transferred to FE or even further down to the compulsory education years. "
Three major inquiries including the National Commission on Education and the Labour party's Borrie Commission had backed the idea to move cash further down the system.
Other researchers close to the DFEE say what appears in the final Dearing report is "a watering down" of their original arguments. Given the pressure on the education system and the lobby from HE for more cash, they insisted further work on the economics of expansion was needed urgently.
* Sandwich years and work experience should form a significant part of most degree programmes, Sir Ron made clear this week.
And he urged universities to open themselves up to the world of industry to produce more work-ready graduates.
He praised companies such as Ford for their higher-level training schemes, and work in partnership with university engineering departments.
The report says: "The strongest message conveyed to us by employers in the course of all our work is that they would like more students to have work experience.
"This is seen as particularly valuable by small firms who cannot afford training or support for a long induction period."
The committee acknowledged the difficulty of organising a year in work for undergraduates, but said less extensive alternatives were worth pursuing.