A government adviser and crossbench peer has warned there could be an “American-style catastrophe” in English higher education if ministers push ahead with plans to expand opportunities for private providers to become universities.

Alison Wolf, professor of public sector management at King’s College London, said a change to legislation could damage the UK’s reputation for higher education and leave students at risk of using student loans to buy worthless degrees.

“Sweeping general legislation might make it easier to set up a really small, innovative, educationally wonderful institution, but it’s much more likely to mean we end up with the American-style catastrophe,” said Wolf. “I think we’ll have those [poor quality] colleges on a much greater scale, and I think they’re going to recruit all over Europe because that’s the obvious place to get your huge numbers,” she said.

“All the evidence is that when you take off the cap and you write a blank cheque from the government you get dramatic expansion, and if you also make it easy for for-profit institutions to pile into that space the expansion will be even greater. We’ve already got a situation where the cost of student loans that are not going to be repaid is spiralling.”

The government is expected to push ahead with legislation to speed up the process through which private providers can obtain a university title. At present, colleges have to pass through a regulatory framework before they can be called a university – a label that can dramatically boost applications from overseas.

The number of students studying at alternative providers has grown from 6,600 in 2010-11 to about 60,000 in 2015. A 2014 National Audit Office report warned that thousands of the students enrolled at such college were not registered to take recognised exams. The report was prompted by a Guardian investigation which found bogus students were using colleges as a “cash point” to access loans.

The government has since introduced ad hoc regulatory changes to clamp down on such practices, but critics warn that a future bill looks set to weaken requirements.

It’s much more likely to mean we end up with the American-style catastrophe Alison Wolf, King's College London

“My worry is that it’s all about accelerating the processes and not building them in a way to boost quality and student experience overall,” said Andrew McGettigan, author of The Great University Gamble: Money, Markets and the Future of Higher Education. “You have to worry about what’s happening there: investors and hedge funds are lobbying the government to open the sector up to something that’s more in tune with their investor cycle.”

It now takes between eight and nine years to obtain a university title, but a recent green paper suggested this could be reduced to between five and six years.

McGettigan said that the last expansion of private providers under the coalition amounted to a public policy disaster. “Over a billion pounds went to students and colleges for what looks like very little return. No one really knows how many qualifications were achieved. [Colleges] were chugging for students outside job centres and tube stations. They weren’t going through Ucas – they had direct marketing campaigns. That’s where most people worry about the quality – the incentive is for people to make a return in five years. The only way you can do that is by growing very quickly – and it’s really not clear where the quality control will come in.”

Aldwyn Cooper, vice-chancellor and chief executive at Regent’s University London, a not-for-profit private university, said established providers fear their reputation will be damaged by poor-quality colleges. “There are a variety of institutions who say it’s impossible to get degree-awarding powers, and we should get them immediately on application because we’re so wonderful – but they haven’t demonstrated a track record, and this is a real threat to students.”

Carl Lygo, vice-chancellor of BPP University, a for-profit institution, said that having degree-awarding powers and a UK university title is worth about £80m in revenue for the institution. But he added: “Having said that, you have to go through a rigorous process and some will be thinking is it worth me putting all that extra cost and effort into that goal, when I could do something else and achieve similar results.”

A Department for Business, Innovation & Skills spokesman said: “We are consulting on a range of options to increase choice for students and encourage greater focus in universities on teaching quality and employability. Enabling more high-quality providers to enter the sector will help to extend higher education in areas that currently lack provision.”