Cut-price charges for foundation degrees are being considered to sweeten the pill of introducing differential fees and to help universities meet the government's expansion targets.
The two-year courses would become far cheaper than honours degrees under plans being prepared by advisers to the Department for Education and Skills.
Consultation papers, seen by The THES , argue that a single maximum charge of £1,100 a year is untenable and is a distortion of the true costs of higher education.
They argue that it is inequitable to charge the same fee for a two-year foundation degree in aromatherapy delivered by a local further education college as a three-year honours degree in business studies from a prestigious university.
Advisers are also looking at abolishing the interest rate subsidy on student loans and at the wage premium attracted by a degree. The much-quoted figure of £400,000 has been used to justify student undergraduate tuition fees and maintenance loans.
It is understood that the briefing papers will be discussed at the end of this month by prime minister Tony Blair, education secretary Estelle Morris and higher education minister Margaret Hodge.
Differential fees will be one of the main issues in a white paper on higher education due in October. Any new fee regime would be delayed until after the next election and would require legislation.
In an interview with The THES this week, Ms Morris insisted that no decision had been taken to raise charges.
But she added: "Government by itself cannot bridge the funding gap, not if we compare ourselves with some of the more generously funded systems. There is no easy answer - we put in lots and lots of extra money and I know it's not enough."
Although she refused to prejudge the white paper, Ms Morris stressed that Labour's commitment not to introduce top-up fees applied only to the current Parliament.
"At least we have got to a point where we are having a debate about higher education and student funding. That was not the case at the last election, and that's progress," she said.
David Robertson, professor of public policy and education at Liverpool John Moores University, who is completing a report for the funding councils on differential fees said that they were necessary and inevitable.
"The picture coming from overseas is that there has to be price differentiation for the foundation degree to work," he said.
Pressure for higher fees could grow if next Monday's spending review fails to secure big increases for higher education for 2003-06. Science, however, is likely to get a £1.5 billion rise over three years, a 16 per cent annual increase on this year's budget.