Private providers are to compete directly with universities for undergraduate places for the first time after the government announced that it aimed to bring them under the same controls on the number of students accessing public loans, and the same quality assurance regime, as the rest of the sector.
In its long-awaited response to the public consultation on the higher education White Paper, the government says it will create a "level playing field" without primary legislation.
The number of students receiving publicly funded loans to attend private providers will no longer be uncapped, and such institutions will also be brought into the framework operated by the Quality Assurance Agency.
The move has been widely welcomed in the sector because it will limit the uncapped growth of student loan money going to private providers.
The number of students at alternative providers drawing on taxpayer-subsidised loans has risen from 4,300 in 2009-10 and 5,860 in 2010-11 to 9,360 in the first six months of 2011-12.
But groups including the University and College Union and Million+, which represents many post-1992 institutions, said many universities could lose out because they would be in direct competition for places with private providers.
Aldwyn Cooper, chief executive of the private, not-for-profit Regent's College, said that post-92 universities were "already finding competition quite difficult" and risked having their places taken away by private competitors.
David Willetts, minister for universities and science, stressed to Times Higher Education that private providers currently accounted for "less than 1 per cent" of the student loans pot. "I don't think existing providers will lose out," he said.
The decision is unexpected because the government has shelved immediate plans for a higher education bill that would have brought all providers under the same regulatory system.
The coalition said it will consult later this year on how to make the changes to student number controls without legislation.
Mr Willetts said the government could designate which courses are eligible for student loans to ensure that private providers are brought under number controls.
The Department for Business, Innovation and Skills could be "much more active in the use of the designation power", he said.
The government must also decide how it will get private institutions to sign up to QAA inspection.
While he stressed that this had not yet been decided, Mr Willetts said one option would be to strengthen checks on validation arrangements, whereby degree-awarding institutions that are already inspected by the QAA give their stamp of approval to courses offered by private providers.
Asked whether private institutions would be able to access student loans of up to ?9,000 rather than their current limit of ?6,000, he said: "We're not proposing any change on that."
As predicted by THE last month, the response also confirms that institutions with 1,000 higher education students, as opposed to the present threshold of 4,000, will be able to take the title of university.
Liam Burns, president of the National Union of Students, said the decision to proceed with many of the White Paper's aims without primary legislation showed that the government was "terrified by public or parliamentary scrutiny".
But Mr Willetts said the decisions were "publicly accountable" and that BIS did not "measure [its] performance by the number of laws we pass".
However, he admitted that original plans to grant degree-awarding powers to non-teaching organisations, such as education giant Pearson, still "probably required primary legislation".
david.matthews@tsleducation.com
David Willetts has been accused of "playing games" with Parliament after the government's response to a highly critical select committee report was released the day before he was quizzed by MPs.
The universities and science minister appeared on 12 June before the Business, Innovation and Skills Committee, which in November published a report on the coalition's higher education reforms.
Committee chairman Adrian Bailey, Labour MP for West Bromwich West, said the late response - given to the committee on 11 June - meant MPs had insufficient time to scrutinise policy. "At best, [BIS] has been shambolic and, at worst, it is playing games," he said.
Mr Willetts said the response was delayed due to the decision to shelve immediate plans for a higher education bill. But Brian Binley, Conservative MP for Northampton South, said BIS' conduct could be construed as contempt of Parliament.
"There is a view...that this committee is not taken seriously by ministers," he told Mr Willetts.