London Metropolitan University could be taken over by a private buyer if the loss of its visa licence leads to insolvency.
Although the institution is mounting a legal challenge to the UK Border Agency's decision to revoke its highly trusted sponsor status, the loss of income from non-EU international students could combine with existing debts owed to the Higher Education Funding Council for England to create a heavy financial burden.
Some believe that a private takeover, or a sell-off of assets, could be on the agenda for the troubled institution.
David Palfreyman, director of the Oxford Centre for Higher Education Policy Studies, said that if the university loses its overseas-student income, it could head towards insolvency.
London Met is a company limited by guarantee, a legal form that makes a sale relatively simple. Taxpayers do not have to underwrite the failure of a company limited by guarantee as they would with the failure of a higher education corporation, which is the legal form common to most post-1992 universities.
"If [London Met] is indeed now at serious risk of becoming insolvent, and since it is a registered charitable company (not a chartered or statutory corporation), the directors/governors [would] need to protect themselves from unlawful trading by invoking the Insolvency Act," Mr Palfreyman said.
He added that no permission from the government or Hefce would be needed for a sale, which could be approved by the university's governors. "The insolvency practitioner sells off whatever assets can be sold because they still have value," Mr Palfreyman said.
"Perhaps the degree-awarding powers 'certificate' is tradeable as a free-standing asset...and some private equity company buys it at a fire-sale price."
David Willetts, the universities and science minister, is said to be willing to explore the idea of allowing a "failing" university to be taken over by a private buyer.
However, he may feel that London Met vice-chancellor Malcolm Gillies - who enjoys strong support from both government and Hefce - deserves more time to develop his radical programme of change for London Met.
Sources have suggested that the private London School of Business and Finance is one institution that could be interested in taking over the university.
LSBF became a validation partner of London Met earlier this year and is said to be keen to acquire its own degree-awarding powers.
However, an LSBF spokesman said: "There are no plans at all to acquire London Met."
When asked whether LSBF could bid to take over the university, Professor Gillies said: "No, exclamation mark. Let's get real."
Andrew McGettigan, a writer and researcher on higher education, warned of another potential consequence of the UKBA action - namely its effect on credit ratings for universities in bond issues, increasingly seen as an option for universities to raise private finance.
"Standard & Poor's and Moody's both underpin their university credit ratings with reference to 'confidence' in the government's 'exceptional support' for the sector," Dr McGettigan said.
"With London Met we see the opposite. Government intervention has holed an institution below the waterline. Can we expect all credit ratings to be downgraded as a result? Not something De Montfort University or the many Russell Group institutions with bond issues would welcome, I imagine."
Meanwhile, London Met has a few potential courses of action to keep its income from existing international students while it fights for its licence. The university is thought to have been approached by private providers offering to teach its international students at campuses on the continent.
London Met could also explore the option of allowing another provider with highly trusted sponsor status, but without its own degree-awarding powers, to teach its international students and allow them to complete their London Met degrees.
The university could use a section of the Further and Higher Education Act 1992 to strike such an agreement.
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It's deficit or death, UCU says
Union leader urges Hefce leniency over shortfall at London Met to avoid disaster
London Metropolitan University must be allowed to operate a deficit budget for several years or it could face closure, a union leader has warned.
Mark Campbell, chair of London Met's University and College Union branch, said the institution should be shown leniency by the Higher Education Funding Council for England in order to safeguard the university's future.
The decision to remove London Met's licence to sponsor non-EU student visas could cost the university about ?30 million a year - nearly a fifth of its annual budget, which was ?157.8 million in 2010-11.
The university has only about ?54 million in net assets, after pension liabilities. It projected a surplus of just ?2.8 million in 2012-13 before the visa controversy broke.
London Met also still has to repay about ?25 million to Hefce over a separate failure in previous years to report its home and European Union student numbers properly.
It has already repaid about ?6 million to the funding body after over-recruiting home and EU students last year, a Hefce spokesman said.
"Repayments to Hefce should be put on hold given the current circumstances," said Mr Campbell.
"We must also be allowed to run a deficit budget for several years," he added.
"I cannot see that cuts along the lines of ?30 million are viable. We have already cut our cloth in recent years but you need a certain critical mass to remain a university."
Unless London Met received help, "the long-term consequences for this university would be disastrous", Mr Campbell argued.
A Hefce spokesman said: "We are working with the university to ensure that it can manage the loss of income and subsequent financial consequences in an orderly way."
London Met, which will charge as little as ?4,500 a year for some undergraduate courses starting this autumn, could also be forced to pay millions of pounds in compensation to students affected by the foreign student ban, a legal expert has warned.
David Palfreyman, director of the Oxford Centre for Higher Education Policy Studies and co-author of The Law of Higher Education, said that overseas students could be entitled to large payouts.
"There will now almost certainly be a mega compensation bill looming," Mr Palfreyman said.
Damages could cover costs such as fees, travel and rent, while new students with an offer could also sue to recover the cost of airfares booked, accommodation contracts and jobs given up, he said.
"The actual amounts depend on the degree to which viable alternative courses are found but it could easily be ?10 million-plus," he said.