Student nurses may stop receiving bursaries and instead have to take out loans to pay their tuition fees under plans the Treasury is considering.

Officials are examining the viability of the cost-cutting measure which the chancellor, George Osborne, could announce in his spending review next Wednesday.

Civil servants are weighing up the potential unpopularity of the move, and the risk of it worsening the existing shortage of NHS nurses, against it potentially freeing up about £800m a year for the government.

It is one of a series of cuts to non-frontline areas of NHS activity and funding that Treasury officials are examining as part of a division of the Department of Health’s ringfenced £116bn annual budget into protected and non-protected areas.

Public health has already suffered a £200m cut and there are also likely to be fewer or less rigorous inspections of hospitals and GP surgeries as part of savings forced on the Care Quality Commission, the NHS care watchdog.

The axing of public funding for future generations of nurses would be controversial. The boss of the Royal College of Nursing (RCN) warned that ending financial support could hit recruitment by putting off people from poorer backgrounds and those considering a change in career.

“Anything that makes people worse off and puts people off from becoming nurses, and reduces the link between student nurses and the NHS, would be a big loss to our society and put us in a precarious position,” said Janet Davies, the RCN’s general secretary and chief executive. She described the plan as “not helpful”.

The proposal could deter the sizeable number of student nurses already owing significant amounts from a previous degree, Davies warned. “The average age of students on nursing degree courses is 29. They’re not all 18-year-olds,” she said.

The Department of Health currently spends £826m a year to help fund about 60,000 student nurses in England through their three-year degree courses. That £826m comes from the £5bn a year the department gives to Health Education England (HEE), the NHS education and training body, which distributes the money to student nurses.

HEE’s budget has become a prime target for the Treasury as it looks for savings. HEE spends £432m and £253m a year on tuition fees and bursaries for nurses, as well as other sums such as £88m on work placements, which take up a lot of their studies.

HEE is at risk of having its income slashed because it is one of the key health bodies funded by the £11bn of the health department’s £116bn budget that is vulnerable to the Whitehall-wide search for savings and which may be removed from the NHS ringfence. Most of the rest of HEE’s budget is seen as untouchable because it uses another £3.5bn a year to pay the salaries of junior doctors while they are undergoing training.

Universities UK and the Council of Deans of Health, which speaks for university faculties in nursing and midwifery, have been pressing the Treasury to axe bursaries. They have argued that doing so could lead to an increase in the number of trainee nurses because the existing public funding of them puts an artificial cap on how many can be trained, because HEE commissions a set number of training places each year from British universities.

They claim that the huge demand to study nursing – there are between five and 10 applicants for each of the 20,000 places a year – means switching to student loans would not lead to a fall in trainees. “The overdemand for places is so great that [the Treasury thinks] it will be relatively easy to land,” said a source familiar with its thinking.

Universities have also complained that they lose money because the amount HEE pays them for each student nursing place is 8%-12% less than it costs them to provide courses, which run for much more of the year than most degree courses and so are more expensive to put on.

The Department of Health is thought to be relaxed about replacing bursaries with loans because it is concerned that too many publicly funded student nurses do not go on to enter the profession after graduating.

Dame Jessica Corner, chair of the Council of Deans of Health, last month criticised the existing system of funding nurses as “fragile and vulnerable” to pressures affecting the NHS. Nursing students also suffered “quite a lot of hardship” because the bursaries were “relatively underfunded” compared with undergraduates who relied on student loans, she said.

The RCN is also concerned that bursaries leave many student nurses with too little money to live on.

Labour voiced unease at the possible loss of nursing bursaries. “NHS staff have already been hit by a pay freeze, and many nurses will be affected by the cuts to tax credits too. It cannot be right for ministers to try and balance the books off the backs of hard-pressed nurses,” said shadow health minister Justin Madders.

“Given there is already a shortage of nurses, with some hospital wards dangerously understaffed, anything that risks worsening that shortage would be of deep concern,” he added.

Ian Cumming, HEE’s chief executive, has previously warned that removing HEE from the department’s funding ringfence would lead to cuts in frontline NHS services. “Absolutely the budget should be ringfenced because the vast majority of what we do is direct frontline expenditure on the HS,” he told Health Service Journal in an interview in September.

The CQC is likely to have to scale back the number and depth of the inspections it conducts of hospitals, GP surgeries and care homes because it too is likely to have its budget cut, despite its enhanced role in the wake of the Mid Staffs scandal.