Ministers are tackling the issue by creating a “Takaful” model, by which students would make payments to a communal pot that would then benefit future students wanting to go to university.

The White Paper said: “We will introduce an alternative finance system to support the participation of students who, for religious reasons, might feel unable to take on interest-bearing loans.

“We have heard that some students will not access higher education in these circumstances, some will access higher education and use loans but will be troubled by their situation, and others will restrict their choice of course or institution to try to minimise the sums involved.

“To ensure participation and choice are open to all, we plan to legislate for the creation of an alternative model of student finance.”

Dr Samir Alamad a member of the Sharia Supervisory Committee and the expert who came up with the idea of the “Takaful” funds, said: “In the Islamic faith there is a strong prohibition against dealing with any sort of interest in any sort of financial transactions.”

Under the usual arrangements, students repay their loans to the Government when they start earning £21,000 and pay an interest of 3 per cent or more depending on their earnings.

However, under the alternative finance arrangements, Muslim students, or those from other faiths, would pay an “agency fee” of 3 per cent or more depending on earnings and the money they pay into the fund constitutes a “charitable contribution”.

Responding to concerns by some that this might just be a change in names, Dr Alamad said: “This is different. People pay back to the fund so future students can benefit from it rather than paying back to the Treasury. It’s about giving back to the community.”

Universities to be forced to lower their fees

Separately, universities might be forced to lower their fees to existing students if their teaching was not up to scratch for a year, according to proposals in the White Paper.

It said: “Where a provider’s Teaching Excellence Framework (TEF) level drops for the academic year to which the new level applies, they will have to lower the fees they are charging existing students.”

The new system will be “historyblind” meaning universities won’t be able to “bank” on positive performance from previous years.

However, experts warned this risked “commoditising” the sector with fees going up and down.

News Reported from Telegraph.