Some universities could go bankrupt if they insist on charging full top-up fees and do not position themselves correctly in the market, the Higher Education Funding Council for England has warned.
The vast majority of institutions are planning to charge the full £3,000 fee to students across the board. But Sir Howard Newby, Hefce's chief executive, stressed last week that he had concerns about whether all institutions would be able to sustain this sum for all their subjects.
Speaking at a conference of the Higher Education Regional Development Agency for the South West, Sir Howard said that he had not yet decided whether Hefce would step in to rescue institutions that were in danger of going under. He said: "We might say: you made your bed, you have to lie in it."
Alternatively, Sir Howard said, Hefce might decide it had a responsibility to the students who were paying for their education. He said: "Who wants to be the graduate of a university that went bust?"
After the meeting Sir Howard told The Times Higher that much would depend on how many institutions faced bankruptcy. "If 20 or 30 were in trouble, we couldn't manage. If it were one or two, we could. But should we?" he said.
Michael Driscoll, chair of Campaigning for Modern Universities and vice-chancellor of Middlesex University, accused Sir Howard of scaremongering and insisted that there was every reason for institutions to ask for the maximum £3,000 fee.
He told The Times Higher : "The whole point of the Higher Education Act was to enable universities to get more money. Instead of scaring the living daylights out of universities Hefce should be encouraging them to take full advantage of the introduction of deferred fees."
At last week's conference Sir Howard acknowledged that between now and the end of the decade the sector faced a period of "quite considerable turbulence", as institutions adjusted not just to top-up fees but also to widening access, the full economic costing of research and another research assessment exercise in 2008.
He explained that universities would have to decide whether to chase market position or market share. But he emphasised that, while the likes of Oxford and Cambridge universities could reasonably concentrate on their position in the market, this would get others into serious trouble.
Sir Howard warned that if a university made the wrong choice about how to position itself, it would very rapidly impact on its ability to keep going.
Hefce's board is due to discuss whether it should intervene to help struggling universities at a meeting in February.
A Universities UK spokeswoman said this week: "Far from being a threat, fees represent an opportunity for the sector to counteract chronic underfunding.
"Institutions are fully aware of all the ramifications of the Higher Education Act. They have proven in the past to be very responsive to market demands."
Deian Hopkin, vice-chancellor of London South Bank University, who has yet to announce fee levels at his institution, said: "The one thing that is certain is that no one will want to come forward and say: 'Our course is the cheapest.' People will make a judgement about quality in relation to price."
He warned that if an institution were to go bankrupt, it would have far-reaching consequences for its whole region.
He said: "My view is that it would be very wise for the Government to help universities to overcome any difficulties caused by its own policies."