German students would have to pay a DM2,000 a year (Pounds 885) "quality tax" under the latest financial proposal for solving the country's higher education funding deficit.

The policy body's Centre for Higher Education, has come up with a plan for a "German Study Fund for Quality Assurance in Higher Education".

Students would have to pay DM1,000 per semester into the fund, and the money would be channelled directly to their university and spent exclusively on ways of improving teaching quality, such as smaller classes and more frequent tutoring.

The study fund would be able to raise DM3.8 billion a year from Germany's 1.9 million students. This is close to the DM4 billion funding deficit estimated by an expert education summit in 1993.

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Students who could not afford to pay the fees upfront would have to take out a loan from the study fund.

This would only have to be repaid once they entered the job market and were earning enough to pay.

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The study fund would be set up as a foundation or a public institution, jointly owned by the government and the 16 federal states.

CHE director Detlef Muller-Boling said the proposal is similar to the Australian Higher Education Contribution scheme and is both fair and unbureaucratic.

In Germany there are almost as many higher education finance proposals as there are education interest groups and the only thing they all seem to agree on is that the universities are underfunded and that this is making it slower for students to get through the system.

Federal education minister Jurgen Ruttgers is still pushing his unpopular bill to charge interest on student loans and the Conference of University Rectors is working on a model to charge fees to students.

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This latest plan by the CHE, which is jointly funded by the Bertelsmann Foundation and the conference, comes closest to the university rectors' plan, but develops it further by linking fees to improvements in teaching quality.

Professor Muller-Boling said if students had to contribute to university financing they would choose courses with the best teaching and the best job prospects.

"This would result in competition for students and the structuring and quality of teaching would greatly increase," he said.

Experience from other countries such as Switzerland and Australia has shown that introducing fees does not deter students from lower income families, he said.

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The main argument against Ruttgers's plan for interest on student loans is that it would effectively be a tax on the poor because only a minority are eligible for loans.