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“There are, of course, many reasons to pursue a degree, not only financial considerations, but the potential to earn more is a central part of the Government’s justification for its policy \[on fees\] and it is clear that this simply can’t be applied in all cases.”

Many students would be able to pay off only the interest (currently the rate of inflation) on their loan, rather than any of the bulk, the report predicts.

This is expected to lead to a change in the system, which would penalise students.

The report said: “The implication is that the terms for repayment would have to become much less benign if the fee cap level was raised.

“This could involve increasing the repayment rate. It would almost certainly mean discontinuing the provision of an automatic loan write-off after 25 years.

“In a period of national stringency, it is clear that the treasury can not continue to allow the level of subsidy on student loans to rise.”

The report also said that raising the tuition fees would exacerbate the divide between wealthy, prestigious universities and the former polytechnics.

It said: “Institutions that are capable of investing most heavily in facilities, resources, services and the student experience will be those able to charge the most.

“This advantage will only replicate itself and become more pronounced, as the higher fees are converted over time into ever greater investment.”

Bill Rammell, the higher education minister, said the report had jumped to conclusions about the review of tuition fees.

He said: “The new system is working, as is demonstrated by record levels of applications and acceptances, up by 6 per cent this year.

“The Government has abolished up-front fees and this year two-thirds of students will benefit from a full or partial grant of up to £2,835.

“We have always stated that we will meet our commitment to have an independent review of the first three years of variable fees. I would not like to pre-empt the findings of this review as this report has done.”

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