The government wants private providers to compete head to head with universities over the recruitment of high-grade students, it has emerged.
The plans are part of a proposed system for private providers that would require them to come under the same student number controls as universities if their students were to continue to receive taxpayer-backed loans.
However, the proposal has been criticised by Aldwyn Cooper, principal of Regent's College, a not-for-profit charitable institution that is expected to be granted university status in the new year.
He said it may not wish to take part in the system and called elements of the government's plans "completely unreasonable".
He also predicted that bringing private providers under the caps on undergraduate numbers - which are needed to control public spending - would mean "you are going to have to take numbers away from the state-funded sector: there is nowhere else for them to come from".
The Department for Business, Innovation and Skills is consulting on plans to apply student number controls for 2013-14 to private providers whose students receive taxpayer-backed funding from the Student Loans Company.
BIS says in the consultation that once its policy to allow unlimited recruitment of A-level students with grades of ABB or above goes ahead in 2013-14, private providers would need to "separately identify" how many such students they had.
However, BIS says that alternative providers may be allowed "to benefit from the high grades policy, enabling the recruitment of unrestricted numbers of high grade students".
The consultation proposes two possible methods to cap private numbers.
The first would calculate caps based on providers' forecasts about how many of their students would be eligible for SLC funding in the coming year.
The second would be based on the actual numbers who had secured SLC funding in previous years.
Professor Cooper said the first option was "completely unreasonable" as it would impose a cap on all student numbers, regardless of whether or not the students received SLC funding.
Based on the government's current proposals, Regent's College would "have to think very hard about whether or not we wanted to participate" in the system and have its students accessing SLC funding, he said.
Professor Cooper raised the prospect of banks offering an alternative to the SLC.
He also suggested that the government should introduce a quality threshold and award student number allocations only to private providers with their own degree-awarding powers - seven institutions at present, including Regent's College.
"People who haven't got degree powers but are validated by those institutions that do should get their numbers out of the allocation given to [validating institutions]," he said.
Institutions with such powers "are fully under the oversight of the Quality Assurance Agency", Professor Cooper added.
Damaged seal of approval: Border raid on watchdog-approved college raises questions for BIS
The government proposes that private providers be granted public-backed funding for students if they have passed educational oversight inspections by the Quality Assurance Agency - the check for private colleges wanting to admit international students.
However, last week Leeds Professional College, a private institution, was raided by the UK Border Agency despite passing the educational oversight test in May.
Educational oversight was designed as part of the UKBA's crackdown on bogus colleges and is a requirement for colleges seeking Highly Trusted Sponsor status.
So far this year, the QAA has published 140 educational oversight reports on private colleges. Of those, 131 providers met the watchdog's requirements, four failed and a further five were advised to make improvements.
In its consultation on applying student number controls to private bodies, the Department for Business, Innovation and Skills proposes a new process for the designation of the providers' courses - the process that gives students on those courses permission to access funds from the Student Loans Company.
Designation would require, for the first time, that private providers submit to quality assurance.
BIS proposes that providers "that have successfully undergone a recent review by QAA for Educational Oversight (in order to apply for Highly Trusted Sponsor status) meet the quality assurance requirement for the purpose of designation for student support".
However, the UKBA appears to have found problems at QAA-approved Leeds Professional College during its raid, mounted over allegations that its students were being charged to enter the country on student visas and were then working illegally.
Adrian Watkins, a detective inspector in the UKBA's criminal and financial investigation team, said 10 people had been arrested, according to newspaper reports.
"Today there should have been 138 students in class when we attended the premises. There were, in fact, just two...and they weren't actually studying," he was quoted as saying.