Universities are being paid a bonus worth up to £1,000 for every student they accept with lower qualifications.
They are receiving the cash premiums for taking students with Ds and Es at A-level as ministers battle to come within reach of a controversial university expansion target.
Funding chiefs admitted the Government’s flagship target to recruit 50 per cent of 18 to 30-year-olds to higher education—originally given a 2010 deadline—is not likely to be met for another decade.
Universities are being told to spend the bonuses on remedial classes to help students with few or no qualifications cope with degree-level studies.
They are expected to provide pastoral support for students and re-draft their first-year teaching to include courses that will ease them into university life.
But academics called the payments “perverse incentives” and said universities should concentrate on developing talent rather than meeting numbers targets.
There were also claims that the bonuses amount to inducements to universities to distort admissions and sideline candidates with good grades.
Under a funding settlement unveiled today, universities will be paid “retention” bonuses on a sliding scale, with £943 available for undergraduates with no qualifications at all.
Premiums will also be paid when students achieve DDE or less at A-level, with smaller sums available for three Cs or less.
The cash is meant to help bring down dropout rates after evidence that nearly a quarter of students fail to finish their courses.
A separate premium of £287, part of the same £352million pot, is handed to universities for every student recruited from a deprived postcode.
But there were claims last night that leading institutions are being penalised for failing to do enough to recruit “non-traditional” students.
Many, including Oxford, Cambridge and Bristol, will see cuts in funding designated for attracting students from broader social backgrounds.
Cambridge is receiving just £371,445 while many former polytechnics—at the forefront of Government moves to boost numbers at university—are getting several million.
Professor Alan Smithers, adviser to the Commons Children, Schools and Families Committee and an education expert from Buckingham University, said: “This is a perverse incentive.
“It’s a bit like trying to find young people to represent us in the 2012 Olympics who are not very good and giving the coaches more money to try to train them up.
“These incentives will encourage universities to take more risk and it will lead to young people being taken on in higher education when they would be better off with practical education.”
Ministers say the target of getting 50 per cent of 18 to 30-year-olds into higher education is needed to equip more workers with high-level skills.
But critics are increasingly questioning the quality of some courses and asking whether university is always the best way of acquiring such skills.
Apprenticeships and vocational training could be alternative options.
They also warn that growing numbers are recruiting students with poor grades, casting doubt on their aptitude for degree-level studies.
Business leaders have said that too many graduates are emerging in subjects such as media studies when the country is crying out for engineers and scientists.
Under today’s settlement from the Higher Education Funding Council, £185.9million is being allocated to institutions to help improve drop-out rates.
A total of £943 is payable for mature students without A-level qualifications or no qualifications at all, with lesser sums for average-or low A-level grades.
Among school-leavers, £566 is payable for those with DDE at A-level or less, with a lesser amount for three Cs or less.
The separate “postcode premium” is worth up to £287 for all students from areas where few residents have university degrees.
But a scathing report from the Commons Public Accounts Committee claimed that £800million already spent on initiatives to curb dropout rates had failed to have an impact.
Higher Education Funding Council chief executive David Eastwood admitted that even with more than 60,000 extra student places planned over the next three years, ministers would bring university recruitment up to 45 per cent of 18 to 30s—short of their 50 per cent target.
But he added: “If you continue to grow the sector at the existing rate you will reach 50 per cent quite rapidly, certainly by the middle of next decade.”
There are around 900,000 undergraduates in England.