Welsh sixth-formers who study at a "home" university could pay up to Pounds 1,000 less in tuition fees than English students crossing the border for courses in Wales.
A variable fee system for Welsh and non-Welsh students is one of six possible options for funding higher education in Wales, outlined in a progress report from the Rees review published yesterday.
But the review, commissioned by education and lifelong learning minister Jane Davidson, will not make a firm recommendation until its final report, due in late April or early May. That would bring the whole controversy surrounding student fees and debt dangerously close to the anticipated May 5 general election date.
English universities will be able to charge variable fees of up to pound;3,000 a year from 2006-7 to help plug the funding gap in HE. Most look set to charge the maximum, and applications to courses starting this year - which will avoid the fees - are up significantly.
Students paying the higher fees in 2006 can take out loans but will not have to pay them back until they are earning a specified amount. They can also apply for means-tested grants and loans.
The Assembly government has ruled out any change to the current pound;1,200 fee in Wales until 2007-8, honouring Labour's 2001 election pledge not to increase them. It intends to compensate Welsh universities for the "income forgone" through a supplementary income stream (SIS).
But the Rees review's progress report makes it clear there are no easy options for plugging an estimated annual pound;20 million revenue and pound;30m capital funding gap facing Welsh universities.
Sticking with a pound;1,200 fee would cost the Assembly an extra SIS of Pounds 28m in 2006-7, rising to pound;73m by 2009-10, it calculates. This model, and another positing a fixed fee of pound;2,000, could result in more English students moving to Wales to study because of lower fee levels.
England's variable fee model, applied in Wales, would cost only pound;3.7m by 2009. A pound;2,000 fee for Welsh students and pound;3,000 for others would cost pound;26m in 2006, pound;28m in 2009, and may encourage Welsh students to study in Wales.
The cheapest option is a fixed pound;3,000 fee, which would erase the need for a SIS by 2009-10. But this would leave Welsh universities unable to compete for English students by offering discounted fees.
Welsh university vice-chancellors have told the Assembly there is "no realistic alternative" to extra fees to match the funding available to England from 2006.
But all the options have weaknesses, says the Rees report.