The human costs of a heavily criticised government funding decision are coming to light as university applicants are hit by the new rule.
The change means universities receive public funding towards the costs of a student place only if it leads to a higher education qualification at a more advanced level than that already held by the applicant.
One student told Times Higher Education he was "devastated" after being told that the only way he could fulfil his ambition of gaining a place on the Royal College of Art's (RCA) industrial design engineering course was by paying more than ?46,000 in fees.
Jonathan Fraser, 21, who is in the final year of a four-year engineering degree at Trinity College, Cambridge, had set his sights on becoming a product designer. He won a team prize for the "most manufacturable product" and gained a first in his third year.
After paying ?50 to apply to the RCA and spending a week assembling a portfolio, he was invited for an interview, which was due to take place this week. But then he received a call from the college.
It said that because he was due to graduate this summer with an MEng, and the RCA course, run jointly with Imperial College London, was also a masters-level qualification, he would be hit by the new ELQ (equivalent or lower-level qualification) rule.
He was informed that if he won a place, he would have to pay the same fees faced by international students, currently ?22,850 a year, a sum he said he could not afford.
The usual fee is ?4,780, which Mr Fraser hoped to cover via a studentship.
He said: "I did have a few other fallback options - a couple of job applications - but the company I had applied to has stopped recruiting because of the economic climate.
"It just seems so horribly unfair that by doing one more year, (the system) cuts me out. This will really gut the RCA course of talented young engineers."
After being contacted by Times Higher Education, Sir Christopher Frayling, rector of the RCA, made a recommendation to the college's council that an exception to the ELQ rule be made for the industrial design engineering course.
If the recommendation is approved, candidates with MEng degrees will be charged home student fees, but the institution will have to bear the extra costs.
"We believe it is imperative that we continue to attract the best students for all courses," Sir Christopher said.
The ELQ rule has been described by the University and College Union as "the most widely condemned government education policy of the past ten years".
When the rule change was announced in 2007, the Government claimed it would allow it to spend the money saved on extra places for first-time students.
However, since then it has cut the 15,000 additional student numbers it promised for 2009-10 by 5,000, and extra numbers for 2010-11 are on hold subject to a review later this year.
Some courses, including teacher training and foundation degrees, are exempt from the ELQ rule.