The University of Central England in Birmingham is to stop recruiting extra full-time students funded by the funding councils to avoid bad debt and bureaucracy.
Over the next four years, it will instead take on up to 35 per cent more National Health Service-funded full-timers who are better supported and free of funding council regulations.
Peter Knight, UCE's vice-chancellor, said the move was in response to a funding and quality assurance regime that had become too costly for institutions and students.
He said NHS students would become UCE's principal growth area because "they are good students who are easy to recruit, they are better funded, they come with bursaries, they will get jobs and there is a genuine partnership between the university and the NHS".
A university could receive more than £4,500 per NHS student per year on terms agreed with NHS trusts, compared with, for instance, just £2,800 per business studies student per year from the Higher Education Funding Council.
Dr Knight said funding council-funded students came with problems associated with fee-paying and debt, and with bureaucratic regulations that have grown out of proportion to funding council contributions to university budgets.
An internal UCE finance committee report says the problems of non-payment of fees and bad debt have become so acute that the university has had to recruit a credit manager to head a debt collection service.
In July, the university sent letters to 974 students owing a total of £845,099 in fees for last year to warn them they would not be allowed back until they paid up.
By September, £1.9 million was owed by students and their sponsors, of which £1.2 million related to fees and rents for last year.
The university has earmarked £1.3 million of its budget to cover bad debt - more than twice the previous year's sum.