The first hard evidence of growing drop-out rates is emerging from Higher Education Funding Council for England statistics.

HEFCE statisticians are working on institutional returns as the council prepares to issue maximum allocated student numbers for the 1995/96 academic year next month.

Precise numbers are not yet available but Graeme Davies, chief executive of HEFCE, said this week: "While the numbers of entrants held up, the system as a whole was slightly under-recruited last year which indicates a fall in numbers in the late years of courses. It looks as though people are taking career decisions to break their courses -- my guess is that the reasons are financial, with people building up debts, looking round and saying 'I have to do something about this'."

Meeting last week for the second part of its three-stage allocation process, HEFCE decided to favour teaching better in the allocation of teaching and research funding. Previously research has been shielded from efficiency gains but the 1995/96 allocations will treat both categories equally.

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After an initial adjustment to teaching funding to allow for increased student numbers, both will be increased by 1.75 per cent in cash terms. Teaching funding will be Pounds 2,268 million, and research Pounds 636 million divided into Pounds 600 million for QR (quality related) Pounds 20 million for GR (generic) and Pounds 16 million for DevR (development). This is equivalent to a 1.5 per cent efficiency gain for both teaching and research.

Professor Davies said: "We recognise that in the past two years the major research players have had increases of between 10 per cent and 25 per cent and so are well ahead of the game."

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The allocations will continue non-consolidated funding, aimed at providing a margin for development. This year's total will be Pounds 60 million, up from Pounds 36 million last year. Unlike last year, some will be earmarked, with Pounds 4 million allocated for part-time students and the remainder will be distributed pro rata.