Funding chiefs are sitting on about £30 million allocated for university places that failed to materialise.
The money will stay in the Higher Education Funding Council for England's coffers for the next year because of universities' inability to fill the extra places that were allocated to them for 2000-01.
Some vice-chancellors believe that the money is being withheld as a life raft that might be needed to save a handful of universities from financial disaster if they continue to under-recruit in 2001-02.
The pot of cash is part of a total of more than £60 million allocated to universities for additional student places for the past academic year. Universities failed to recruit sufficient students, so, as is common practice, the funding council disbursed sufficient cash to fund just the extra places that were filled. Only about half was handed out.
In previous years, the leftover sum would have been shared out among all universities the following year - in this case 2001-02. It would have been distributed in proportion to each institution's teaching grant.
Hefce has confirmed that this did not happen for 2001-02. It has decided, as an act of "prudence", not to reallocate the money but to hold on to it to increase its flexibility next year.
Hefce said the sector would still get the money, which had not been returned to the Treasury or anyone else in 2001-02. It said it would decide on the basis for next year's allocation in February in the usual way.
From the universities' point of view, money that would ordinarily have been redistributed to all institutions to help them improve the quality of education for the students they have recruited could now be directed to a small number of under-recruiting institutions that might face serious financial difficulty next year.
The government's expansion targets are demanding. Low unemployment combined with academic exclusion that begins in secondary schools, means that many universities are struggling to recruit enough students to meet their expansion targets. This is unlikely to change in 2001-02, or even by 2002-03, so some universities could see their under-recruitment compounded year on year.
The newer universities are likely to suffer most. Students tend to want to maximise the prestige of the education they receive for their tuition fee. They often equate quality education with research reputations, which means that some older universities that have been allowed to recruit above initial targets are benefiting at the expense mainly of newer universities.
Some in the sector view the change in the hold-back policy as a scandal and see it as compounding higher education's problems in the face of a lack of demand for places.
Peter Knight, vice-chancellor of the University of Central England, said:
"We are talking about academic set-aside not dissimilar to the money farmers are paid by Europe to leave fields fallow.
"The problem is that unless there is a significant increase in demand for places in future years, then it becomes increasingly difficult to stop funding these phantom places without causing institutions serious financial difficulties."
Michael Shattock, visiting professor at the Institute of Education, London, and former registrar of Warwick University, said it was bad practice to keep back money from the recurrent grant and hold it in reserve. He said that those universities that had met expansion targets would feel they had not been rewarded accordingly, which, he said, was not equitable. "The policy that imposes hold-back should be rethought. It is punitive to a group of institutions that actually need to rethink their future in the light of the government's changes to the student funding arrangements."
Professor Shattock said that if the sector continued to face under-recruitment, restructuring was required rather than emergency financial intervention by the funding council.
A spokeswoman for Universities UK said: "I am sure that institutions would have preferred this money to be distributed in the usual way, through the funding formula. However, this money will be invested in higher education next year so it is not lost to the sector."
In 2001-02, cash is being withheld from 53 higher education institutions because of under-recruitment. Three of these each lose more than £1 million: Imperial College, London, the University of Teesside and Harper Adams University College, although the last two institutions will see these losses offset by additional planned expansion.
Hefce chief executive Sir Brian Fender has admitted that some universities are having to work hard to fill their places even though, he said, demand was still rising overall.
The government wants half of all people under 30 to have benefited from a higher education by 2010. It hopes that much of this expansion will take place at sub-degree level and through part-time study.