The Treasury will pay for many of the reforms to student support proposed by the government, leaving universities £1 billion better off as a result of the changes.
During the second reading of the higher education bill this week, Charles Clarke, the education secretary, said public funding would not be cut in line with the private income raised by increasing tuition fees.
Alan Johnson, the higher education minister, told Parliament: "The announcement made by (Mr Clarke) on January 8 (during the bill's first reading) - what is now a grant of £2,700, a 25-year cap and an in-crease in the loan - does not affect one iota the money for universities in this package. The universities will still get the £1 billion.
"The money for deferring up-front fees, the money for grants and higher threshold, and support for part-time students will all come from the chancellor. The extra money for the maintenance grant and the 25-year cap will come from the higher education budget."
Sources at the Department for Education and Skills confirmed that the Pounds 140 million had been found by "reprioritising" the higher education budget to pay for an additional £500 per student eligible for the new £1,500 grant element.
The £1,000 component of the grant, originally announced in the higher education white paper, is covered by the existing spending review cash received from the Treasury.
Sources said that the reprioritisation of money would not affect the budget for higher education. The capping of the repayment period to 25 years is projected to cost £35 million.
The cost of paying the existing fee waiver of £1,125, likely to be Pounds 1,200 when fees are introduced in 2006 as a grant, is more or less neutral in accounting terms since the amount of loan (and so the amount the government has to pay out on loans) available to those getting the full fee grant is reduced by £850.
Shadow education secretary Tim Yeo said this week: "When the government introduced tuition fees in 1998, it clawed back the extra money universities had received in fees, so that last year funding per student was lower in real terms than before the fees came in."
He warned: "There is no certainty that the costs the government has committed itself to - which exceed the money universities will receive in tuition fees -will be met other than by clawing it back from the higher education budget."