Tuition fees should be capped and institutions which overcharge for courses should be fined, the Liberal Democrats said this week.
Unveiling his party's "lifelong learning" policy paper, Paddy Ashdown, the Liberal Democrat leader, proposed a more flexible funding regime.
He wants to give students more choice and opportunity while discouraging universities and colleges from reverting to "elitist" market strategies, he said.
In an interview with The THES, Mr Ashdown said he had no objections to institutions attempting to carve a niche in the market by charging top-up fees. But he added: "We do not wish to go back to an elitist system driven by money, so we would want to keep a very close eye on that, and if necessary set limits on fees to maintain a meritocratic system."
The funding scheme outlined in the paper, The Key to Lifelong Learning, could provide institutions with an extra Pounds 290 per average student per year through increased contributions from the state, employers and students.
The scheme would allow the equivalent of an extra 750,000 full-time students to be supported through new "learning accounts" deposited with a "learning bank". The learning account money would cover both maintenance and fees.
Additional resources to cover the increased funding and the extension of support to part-time and further education students would come from revenue raised through an extra 1p in the pound on income tax, a 2 per cent remissible levy on company payrolls, and contributions from students.
The paper proposes the transfer of Government funding for fees and student maintenance from local authorities to the learning bank. Students would be able to borrow for fees and maintenance, with income-contingent loans backed by the commercial sector.
Don Foster, the Liberal Democrat education spokesman, said that in the "worst case scenario" the students' share of the cost would amount to Pounds 400 per year MORE than the present average.
Institutions would be allowed to charge top-up fees, but a limit would be placed on extra charges for different types of courses by a new quality council, which would also be responsible for monitoring quality in the sector and overseeing a new national credit accumulation and transfer system.