The Department for Innovation, Universities and Skills (DIUS) is facing a shortfall of at least £100 million in funding for student grants.
National newspapers have speculated that DIUS may freeze student numbers or cut grants in response to the shortfall.
An announcement from the Government is expected imminently. DIUS is understood to be standing by its commitments to expand student numbers, maintain unit funding, provide full maintenance grants to one third of students and to provide some form of grant to the remaining two thirds. The announcement is likely to focus on the level of grant available.
David Willetts, Shadow Secretary of State for Innovation, Universities and Skills, said he had heard that the shortfall could be as high as £200 million. DIUS' annual budget is £17 billion.
Whitewall has blamed a "legacy problem" for the deficit, but some commentators have pointed to a failure to properly cost last year's expansion in the number of students entitled to maintenance grants. The move was announced in July 2007, shortly after Gordon Brown became Prime Minister.
Mr Willetts said Mr Brown had imposed the grant expansion on DIUS without consideration of its existing priorities. "I don't think DIUS would have spent several hundred million pounds on increasing the maintenance grant of its own volition. There was no discussion about how these increases fitted in with the department's priorities, and it has been struggling ever since," he said.
Three months later, DIUS cut by £100 million funding for students pursuing qualifications at an equivalent or lower level than those they already held. The department was also criticised in 2007 for an £80 million shortfall in physics research funding.
"The department does not appear to have a coherent strategy," Mr Willetts said.
Wes Streeting, president of the National Union of Students, said it would be a "disgrace" if students had to pay for officials' "bungling carelessness".
Meanwhile the Government's new research tsar has warned academics to "stop whingeing" about funding or risk losing out.
Adrian Smith, the new director-general of science and research at DIUS, said: "It might be a good idea to stop whingeing and actually celebrate the investment there has been so far. Because if you were in government and you thought you had invested heavily and people are still very unhappy (wouldn't you say) to hell with them?"
He made the comments at a seminar last week on the financial challenges facing universities, hosted by the Engineering Professors' Council and the National Conference of University Professors.
Professor Smith warned academics to be "very careful" about their approach to securing funding in an economic downturn and called for an alliance of advocates for continued investment in science and research.
"Naturally, academics in the science and research community never think there is enough. But compared with the situation we are in now ... the past five years at least have been years of plenty," he said.
He also urged academics to make a case for their work in terms of its wider impact on the economy, particularly in delivering highly skilled people to the labour market.
Professor Smith also referred to difficulties arising from the separation of schools and universities into two government departments. While DIUS cares "passionately" about increasing the number of schoolchildren studying science, technology, engineering and mathematics (STEM), responsibility for curriculum development and teacher training lies with the Department for Children, Schools and Families.
"We really have serious cross-departmental issues to solve," he said. The STEM pipeline was likely to be one of the priorities of a new Cabinet committee for science and innovation, he added.
He spoke of the need to motivate schoolchildren, but cast doubt on whether manned space flight - a project advocated by Lord Drayson, the new Science Minister - would succeed in this respect.
"Some people might think that manned space flight would re-engage youth and be the most interesting thing to do. But we really need to find out if that is true," Professor Smith said. He said his own instinct was for "something around saving the planet".
UPDATE – 30 October
In a statement on 29 October, the Secretary of State for Innovation, Universities and Skills admitted that his department was facing a funding shortfall of £200 million. John Denham said DIUS had underestimated the numbers of students qualifying for a full maintenance grant. DIUS had expected only a third of students to be eligible in the academic year 2008-09; in fact, 40 per cent qualified.
As a result, the Government will reduce the threshold of family income below which a student is eligible for a grant. The drop – from £60,000 to £50,020 – will apply only to students entering higher education in 2009-10. Existing students will be maintained on their current support packages. About 10 per cent of new students will be affected.
Lowering the threshold is expected to save £100 million, while a further £100 million will be made up through departmental efficiency savings. Growth in student numbers will also be cut next year to “no more than 10,000” – rather than the 15,000 new student places originally envisaged.
“My department is well on the way to identifying £1.5 billion of cash-releasing efficiency savings over [this spending review period],” Mr Denham added. David Willetts, the Shadow Universities Secretary, has written to Mr Denham asking which DIUS programmes are being considered as part of these “efficiency savings”.