The Learning and Skills Council may take over responsibility for distributing higher education funding to further education colleges as part of a move to help unlock doors to higher education expansion, LSC officials have said.
Cash could be transferred from the Higher Education Funding Council for England to the LSC, so colleges could receive all their money through a single funding stream rather than having to deal with multiple agencies.
The LSC might also transfer some money to Hefce, to allow higher education institutions that deliver further education courses to benefit from the same arrangement.
Institutions in both sectors may even be allowed to use money originally earmarked for further education to fund higher education courses, and vice versa.
Geoff Daniels, assistant funding director for the LSC, told an Association of Colleges "HE in FE" conference in Solihull this week that these ideas were being explored in talks with Hefce on breaking down barriers between the sectors.
He said there was scope for more "joint planning", including an integrated approach to audit and quality assessment, between the two funding bodies.
An LSC spokesman added that although talks were in the early stages "anything is open for discussion".
Mr Daniels' comments followed warnings from conference speakers that funding constraints continued to hamper the growth of higher education in further education, which the government sees as the key route to achieving its 50 per cent participation target.
AoC chief executive David Gibson said attempts to achieve the target would founder unless colleges were directly funded for all the extra places they were able to accommodate.
David Robertson, professor of policy and education at Liverpool John Moores University, said funding was a "snag" for "thriving but not flourishing" foundation degrees.
Professor Robertson, who compiled the first interim report on the national evaluation of foundation degrees, said start-up costs for the new qualification had been higher than Hefce had expected. The fees policy, which does not require institutions to charge less for foundation degrees than honours degrees, was "another impediment", he added.
Otherwise, the development of foundation degrees so far presented "a cup that is half full", he said. The ability of universities and colleges to make it work appeared to be "reasonably secure" and there were signs of support from employers.
Gareth Parry, professor of education at Sheffield University, said the government had "rowed back" from Lord Dearing's recommendations for direct funding of higher education in further education towards indirect funding through "structured partnerships" between institutions.
Yet, he argued, progression into, and provision of, higher education courses seemed to be the only clear purpose colleges could grasp at amid conflicting and confusing policy objectives. "Higher education may be the best argument for the future of colleges and the development of a philosophy of purpose for a college education. It may be the only argument that is coherent and credible," he said.