Labour MP Margaret Hodge, chair of The Commons Public Accounts Committee, has said that the introduction of new funding arrangements for higher education “will leave a substantial funding gap which will either require further cuts in higher education or further resources from the Treasury.”

The committee published a report yesterday which, on the basis of evidence from the Department for Business, Innovation and Skills (BIS), the Higher Education Funding Council for England (HEFCE), and representatives from three institutions has found that the new tuition fee funding model presented dangers for taxpayers and universities.

When the cap on fees was lifted last year, ministers claimed that the top rate of £9,000 could only be charged in "exceptional circumstances". However, it has become clear that 60 out of 124 higher institutions in England have now asked to charge the highest fee for at least some of their degrees. The Office for Fair Access will announce its decisions on access agreements for universities and colleges in July this year – when the full extent of the funding gap will become clear.

Margaret Hodge appeared on BBC Radio 4's Today programme to talk about her report.  She explained that the expected funding gap of hundreds of millions of pounds in the short term caused by the miscalculated student loans figures was unlikely to be covered by the Treasury, leaving the Department for Education to pick up the shortfall. This could mean serious cuts in student numbers.

The total debt held by the Student Loans Company is forecast to rise from £24bn now to £70bn by 2015-16, when the new system is in place, Mrs Hodge told Today:

“That's a heck of a lot of money. There are bound to be defaults, and who picks up the default? You and I, the taxpayer.”

“If demand were to go down from students at home because they don't want to incur the debt, or fewer people do postgraduate courses or fewer foreign students come to the UK, that could mean that some universities risk falling into financial instability. At present, the HEFCE has a list of universities at financial risk - there are about 10 of them at the moment - but it doesn't tell the public until that university has been in financial difficulty for three years.”

“If you are a student and you are risking your own money to go to a university, I think you have a right to know, because otherwise if a university were to fail, you would have put your money up front, you wouldn't get your education and you wouldn't get your degree.”

“I don't think the government will stand behind a university that falls into financial difficulties. I have never known a university fail, but in the future I don't think the government would mind if some universities failed.”

“So I think in these circumstances it is absolutely right, when you are asking individuals to put up their money, they should know the financial health of the institution they are selecting to attend.”

The government pays university tuition fees upfront for students and recoups the money only when graduates are able to pay back the loans. BIS says the cost to government will not become clear until late next year when all students have enrolled and received their loans.