Moves to lower university fees and increase direct grants in science courses, said to be under consideration within government, would benefit high-earning graduates but give the government ¡°more control¡± to target key subjects, according to an Institute for Fiscal Studies researcher.

Meanwhile, with the government also said to be considering varying English university fees in line with graduate earnings, an expert on such data warned that it would risk undervaluing key courses such as nursing.

The Sunday Times that the chancellor, Philip Hammond, ¡°is considering slashing the annual tuition fee universities can charge to ?7,500¡±.

The government would ¡°top up¡± that fee with a ?1,500 grant for students in science and technology courses, it added. But such plans would amount to a drastic funding cut for universities, particularly those without significant proportions of science and technology students.

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Raising the loan repayment threshold to ?25,000 is also said to be under consideration by the chancellor, as the government seeks a way to win back younger voters.

If reports are accurate, Mr Hammond¡¯s thinking on the repayment threshold and grants for science subjects appears to closely follow that of the Institute for Fiscal Studies in an influential recent analysis of higher education funding.

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In addition, the Treasury is also said to be looking at plans to vary the fees charged by different universities according to the expected earnings of their graduates, potentially forcing some further below ?7,500.

Any announcement on changes to the funding system could be in the Budget, to be held on 22 November, but may be trailed at the Conservative Party conference on 1-4 October.

Nick Hillman, director of the Higher Education Policy Institute, said that The Sunday Times story suggested ¡°all sorts of possibilities ¨C which may well be where the government still is, given the conference is still a couple of weeks away and these things sometimes get nailed down very late¡±. But some of the possibilities ¡°would undoubtedly give real concern to universities¡±, he added.

Andy Westwood, professor of government practice at the University of Manchester, warned that in current funding debates ¡°hardly anyone is talking about properly funded universities or institutional autonomy ¨C arguably the two things that the sector holds dearest ¨C and both can be easily sacrificed in the febrile political moment we find ourselves in¡±.

The Department for Education has gathered data on graduate earnings by university and course in its Longitudinal Education Outcomes project, with the first, ¡°experimental¡± batch of full data published in June. In any plan to link variable fee caps to universities¡¯ graduate earnings, it is likely the government would rely on the LEO data, which use the student cohort that graduated in 2008-09.

Anna Vignoles, professor of education at the University of Cambridge, was one of the co-authors on a separate research project, which included IFS researchers, looking at graduate earnings by university and course. ¡°If you take the view, as some do, that the aim of higher education is to make graduates employable then you can define quality in terms of the added earnings and employability,¡± she said. ¡°Most would agree that higher education has a bigger purpose than that.¡±

Many in the sector point out that the variation between universities¡¯ graduate earnings highlighted by the LEO data reflect a university¡¯s geographical location and regional labour market, along with the prior attainment and social background of its students.

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Professor Vignoles said that although these factors could be allowed for in a model using LEO, another key objection ¡°to using earnings as a single measure of quality¡­is that we also need skills that may not be highly valued in the labour market¡±.

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She pointed out that ¡°you could have a high-quality course producing knowledge and skills that are not highly valued by the labour market¡±, citing the example of nursing.

Chris Belfield, a research economist at the IFS and a co-author on the recent funding analysis, said that while the chancellor has not committed to any changes, in general ¡°reducing fees to ?7,500 only benefits the highest earners as these are the only graduates who repay the loan in full¡±.

Such a move would reduce the Treasury¡¯s outlay on loans. However, Mr Belfield said that ¡°if the lost fee income is replaced with grants then the government will be worse off in the long run (due to the lost repayments from high earning graduates)¡± in a ?7,500 fee system. But he added that ¡°replacing fees (and loans) with grants does have the benefit that the government has more control over how these are targeted".

The found that in the switch to ?9,000 fees there were?proportionally greater per-student income increases for classroom-based subjects than for more costly subjects in science, technology, engineering and mathematics. The IFS commented that the current system ¡°does not give the government much flexibility to directly target courses or individuals that have high value to society¡±.

Mr Hammond that the current funding system ¡°does not reflect¡± the higher costs of some subjects ¡°in a way that necessarily incentivises universities to focus on increasing their STEM teaching¡±.

Mr Belfield said: "The chancellor's comments mentioned focusing additional grant funding on STEM subjects which would seem to be in line with the government objectives to increase STEM student numbers.¡±

Raising the repayment threshold ¡°benefits middle- and low-earning graduates the most¡±, Mr Belfield added.

If Mr Hammond is following the IFS¡¯ line of thinking, one key question is whether he will reverse a highly significant move made by previous chancellor George Osborne, and reintroduce maintenance grants for the poorest students. This option is presented favourably in the IFS report, which highlights how the abolition of grants has left the poorest students graduating with the highest debts.

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john.morgan@timeshighereducation.com